African Journal of Business and Economic Research, Volume 3, Numbers 2 & 3, 2008
About This Edition
ISSN : 1750-4562 (online);1750-4554 (print)
ISBN : 978-1-906704315
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We have argued earlier in this journal that private enterprise-driven economic growth provides a realistic promise for absolute poverty reduction in Africa through lowering the levels of real unemployment and strengthening individuals’ capacity to care for themselves and their families. Furthermore, businesses tend to generate revenues necessary for anti-poverty policies of governments. The challenge is how to design policies and strategies that induce pro-poor growth without de-motivating the more industrious segments of an African country and without dependence on donor assistance.
This understanding has stimulated a renewed academic interest in the role of African governments in the development of the private sectors of their economies. During the last two decades most African nations have embraced economic liberalization as an effective policy instrument for stimulating private enterprise development. Liberalization is generally associated with the removal of all forms of government interventions and the reliance on market forces to achieve the desired macroeconomic objectives. In more practical terms, this means removing all barriers for private enterprise establishment and the privatization of existing state-owned enterprises. It also implies sound management of the foreign exchange reserves of the nations and the promotion of private financial inflows and the stimulation of vibrant stock exchange activities in the countries. The measures included restoration of macroeconomic stability, reinforcement of market-friendly economic institutions, accumulation of external reserves, and promotion of economic growth. The financial institutions in particular have received special attention. Government policies in recent years have aimed at strengthening the financial infrastructure through upgrading governance, prudential supervision, and establishing shock absorbing mechanism for the banking system and other institutions. The failure of earlier decades of state intervention and state ownership of productive resources has provided both intellectual and empirical justification for these liberalization initiatives.
All the papers in the present volume of AJBER provide insights into liberalization approach to economic growth in Africa and the consequences for different industries and management strategy formulation.
Samuel Adam’s paper provides a critical review of both theoretical and empirical literature on privatization of firms in developing countries in general and Africa in particular. The review suggests that the real problem of public enterprise failures derives from what he calls “the leaky bucket effect” – i.e. the situation in which bureaucrats and politicians tend to divert funds to private uses. This implies that merely changing ownership of enterprises or reducing the role of the state in businesses cannot ensure economic efficiency in Africa. In his view, African countries need also to address problems confronting the market structure, competition and regulatory infrastructure in their economies in order to create a framework for economic growth.
Evans Osabuohien and Egwakhe’spaper takes up the issue of foreign reserves and provides some reflections and empirical insights into the debate in Nigeria about the appropriate strategies to adopt to ensure an economically productive use of the reserves. The paper takes its point of reference in the general argument by most economists that governments must be utmost prudent in the use of their nations’ reserves and the usage must depend on the absorptive capacity of any given economy. Governments may hold external reserves in order to defend a country’s domestic currency and economy or to build external confidence in the economy. Such holdings are, however, not without cost.The paper shows that Nigeria’s external reserves during 1994 and 2004 consistently exceeded a three months benchmark equivalent stipulated by the government. It also showed that holding the reserves did not fully ensure exchange rate stability and export growth, which were the declared objectives of the Nigerian government.
Subadar Ushad and his colleagues took up a discussion of bid-ask spread in the Mauritian equity market. In simple terms, bid-ask spread is the difference in price between the highest price that a buyer is willing to pay for an asset and the lowest price for which a seller is willing to sell it. The bid-ask spread can therefore affect an investor's overall portfolio return. The authors analysed the bid-ask spread for twelve companies listed on the Mauritanian Stock Exchange for a period of 17 weeks, considering such determinants as closing price of the stock, daily volume traded, the level of market activity and the return on the stock. The main results show that most companies’ spreads are influenced by their daily prices and the level of market prices. Firm size and liquidity have also emerged from the study as important considerations when determining the bid-ask spread.
Robert Hinson and his co-authors investigated the antecedents and environmental moderator effects on market orientation and export performance of Ghanaian firms. The results of the study show that while market orientation relates positively to export performance, the environmental moderators do not have any significant impact. Antecedents to market orientation presented mixed findings - some were found to be prerequisites for market orientation whilst others were not. On the strength of the findings from this study, the authors suggest that market-oriented firms compete more effectively and efficiently than their less market-oriented competitors.
John Kuada discusses the problem of power asymmetry of MNCs and the temptation that it carries for their managers to shift investment burdens to small local firms, lock them up in captive relationships and renege on the contracts that they sign with them. He argues further that the asset specific nature of the investments made by the small firms in order to satisfy the MNCs makes the losses that they incur rather devastating to them. These arguments have been illustrated with two cases of MNC outsourcing agreements with local firms in Ghana. The paper also discusses the implications of this misuse of power for relational governance mechanisms that small firms must put in place to deal with the MNCs.
How do the insights produced by these authors compare with dominant perspectives on private enterprise-driven economic growth? It has been argued above that the prevailing wisdom from economists is that government policies such as liberalization, prudent management of foreign reserves and institutionalisation of stock market would combine to render developing economies market-friendly and stimulate competitiveness, enterprise development and integration of the economy with the rest of the world. The evidence from the papers provides a mix picture of the effects of these policies in Africa. Together, the papers highlight some of the fundamental difficulties that African economies still face and emphasise the need to find creative local solutions to the challenges rather than to import policies that appear to be effective in other developing countries. They also underlie the importance of continued research in the field.