Why African Entrepreneurs Outperform Their Peers When the Playing Field is Leveled

ResearchEntrepreneurs in some of the world’s poorest countries should find cause for optimism in “Explaining Africa’s (Dis)Advantage,” a recent study co-authored by Wharton management professor Ann Harrison and published by the National Bureau of Economic Research.

“If … you were to give African entrepreneurs the same kind of environment as an American or European entrepreneur, they would outperform their counterparts,” Harrison says. By imagining impoverished African nationals on a level global playing field, Harrison and colleagues Justin Yifu Lin at Peking University and L. Colin Xu at the World Bank see ample potential for “a positive reinforcing cycle of development.”

In contrast with existing research that examines the big picture in Africa using macroeconomic data and microeconomic studies of single outcomes — which often overlook the broader aspects of how African firms behave and perform — Harrison, Lin and Xu take their research a step further. They parse the macro picture using firm-level data from 12,000 companies in 32 sub-Saharan African countries whose average annual per capita GDP languishes below $3,000. Per capita GDP in the poorest countries is less than $500 a year. The data were supplied by the World Bank’s Enterprise Surveys, which, the researchers write, are designed “to benchmark the investment climate in developing countries across the world and to understand the determinants of firm performance and behavior. In each country, the survey was based on the universe of eligible firms obtained from the country’s statistical office … and the result is a representative sample of the non-agricultural private economy in the country.”

According to the researchers, insufficient infrastructure, scarce access to credit and political monopolies cripple these economies. Inefficient telecommunications, a proxy for infrastructure, consistently retains top ranking among the reasons for their perennial disadvantage. The difficulty to gain financing — due to a lack of formal lending sources — garners second place. Single-party rule also inhibits progress to a lesser degree. “If one could adjust the daunting list of geographic, infrastructure, political, economic and institutional factors to the levels [that exist] elsewhere,” the authors write, “Africa possesses an inherent advantage.” Harrison adds that this could be because African firms have had to become stronger and work smarter in order to survive such a challenging environment.

Originally Published July 17th 2013 by Knowledge@Wharton

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