Business environment and productivity in Africa: macro evidence
Date
2023
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
International Journal of Emerging Markets
Abstract
Purpose – Africa’s business environment (BE) is characteristically unfriendly and poses severe development
challenges. This study evaluates the impact of business climate on productivity in sub-Saharan Africa (SSA).
Design/methodology/approach – Macroeconomic data for 51 sub-Saharan African economies from 1990 to
2018 are employed for the analysis. The seemingly unrelated regression model is used to address inter-sectorial
linkages.
Findings – The study uncovers several findings. First, a high start-up cost substantially leads to productivity
losses by limiting the funds available for investment in productivity-enhancing labour and technology and
limiting the number of businesses that see the light of day. The productivity impacts of start-up costs are most
enormous for industry, followed by services and agriculture. Second, economies with favourable financing
environments tend to be more productive economy wide and sector wise. Third, high taxes and tax inefficiency
lower productivity by reducing the resource envelope of firms, thus lowering investment amounts. Fourth, poor
business infrastructure inflicts the most damage on productivity. Lastly, business administration and
macroeconomic environments impact sectoral and economy-wide productivity.
Practical implications – SSA economies must strive to lower the cost of starting a business as high start-up
costs injure productivity. One way of reducing start-up costs is to create a one-stop shop for registering and
formalising a business. Another way is to automate business registration and administrative processes to
reduce red tape and corruption.
Originality/value – The authors extend the body of knowledge by analysing sectoral and economy-wide
productivity effects of various business climate indicators while accounting for inter-sectoral linkages, cross sectional dependence and endogeneity.
Description
Research Article
Keywords
Business environment, Productivity, Sub-Saharan Africa