Csae Wps/2004-05

Recent reforms in most African economies of their trading and exchange rate regimes have eliminated much of the protection which previously limited competition. Despite these reforms, African manufacturing firms remain unsuccessful, particularly in international export markets. In this paper we consider the roles of learning, competition and market imperfections in determining three aspects of firm performance, namely firm exit, firm growth and productivity growth. We use a pooled panel data set of firms in Ghana, Kenya and Tanzania that spans a period of five years. We find that the main determinant of exit is firm size, with small firms having much higher exit rates than large ones. Productivity impacts on firm survival among large firms, but not among small firms. Reasons for this result are discussed. We find evidence that, among surviving firms, old firms grow slower than young firms, which is interpreted as evidence consistent with market constraints limiting growth of firms in Africa. We find no evidence that larger firms have faster rates of productivity or input growth, or are more efficient in the sense of benefiting from scale economies. We also find that competitive pressure enhances productivity growth. Given that one of the objectives of the reform programmes implemented in all three countries was to stimulate higher efficiency levels, this finding shows that one aspect of the reform programme has been successful. We thank Paul Collier as well as seminar participants at CSAE and UNIDO for comments on earlier drafts of the paper. The data for all three countries used in this paper Ghana, Kenya and Tanzania was initially collected as part of the Regional Program on Enterprise Development (RPED) organised by the World Bank. The original questionnaire was designed by a team from the World Bank. The data for the later periods for all three countries was collected by a team from the Centre for Study of African Economies, University of Oxford in collaboration with the Economic and Social Research Foundation (ESRF), Dar-es-Salaam, the Federation of Kenya Employers in Kenya and the Ghana Statistical Office, Accra. Funding from the UK’s Department for International Development (DFID) contributed to the Ghana and Tanzanian survey data collection, Sida and UNIDO assisted in the Kenyan data collection. We are greatly indebted to numerous individuals in these organisations for their assistance. We are responsible for all errors and the interpretation of the data. * Corresponding author: [email protected]