•Third,the data can also go beyond benchmarkingto test directly the impact of these objectiveconditions on the actual performance of the firm,for example,how the actual investment climateconditions affect the productivity and employmentgrowth of respondents.•Fourth,large,randomly selected samples of firmsallow for results to be compared across typesof firms,with particular attention paid here tofirm size.For many of the countries in the region,theEnterprise Surveys are the only source of detailed infor-mation on firm performance and disaggregated objec-tive indictors of a wide variety of business environmentindicators.The next section demonstrates the range of pro-ductivity and employment growth outcomes across theregion,including the results from Brazil,China,andIndia,for comparison.It then moves to identify keydimensions in the investment climate across countries inthe region that can help account for these patterns.First,it examines the top constraints as reported by firms,linksthem to objective measures of these constraints,andlooks at how these patterns vary across different group-ings of countries.Second,it examines ways to prioritizeconstraints from among obstacles in a longer list and toidentify which measures account for greater differencesacross groups of countries.Third,it links the objectivemeasures of the investment climate directly to produc-tivity and job creation across countries,illustrating thepotential gains from reform.While most of the chapter analyzes the impact of the investment climate acrosscountries,the last section disaggregates the effects of thevarious dimensions of the investment climateby typesof firm,focusing on firm size,ownership,and exportorientation.Access to finance,electricity,tax rates,regulatory uncertainty,and corruption emerge as keyareas for reform—with specific priorities varying not just across countries,but within countries too.
Firm performance across Africa
Growth rates in Africa have been rising in recent yearsas greater macroeconomic stability has been achieved inmore countries and additional reforms have been under-taken.But the key to maintaining growth is not simplymobilizing more capital or labor.What is needed isgreater productivity—being able to produce more withthe same inputs.
Productivity growth in Africa has beenlower than in other regions.The average productivitygrowth from 1970 to 2000 was stagnant or even mildlynegative.
Returns to investment have also been relativelylow.Investment rates are lower and the returns averageabout half those of other developing countries.
What isencouraging is that the recent trends have been morepositive.Regional growth rates over the last five yearshave been higher than in Latin America and theOrganisation of Economic Co-operation andDevelopment (OECD) countries,with the averagegrowth rate in Africa of just under 5 percent.Within Africa,productivity varies tremendously— both across countries and within countries.Some of this is simply the result of differences of entrepreneurialtalent across individuals.Some of the variation reflectsdifferences in endowments or geography,but at least asmuch mirrors differences in investment climate conditionsas illustrated in Figure 1 (see also Appendix B).Figure 1shows how there are more productive firms in locationswith better investment climates or business environments.The figure plots the share of firms in each country withlabor productivity above a benchmark against the GlobalCompetitiveness Index (GCI) discussed in Chapter 1.1.
As the GCI captures many dimensions of the businessenvironment,it is a suitable summary measure to corre-late against firm performance.Figure 1 uses as its bench-mark the median labor productivity of all the small andmedium size firms (11–150 employees) combined into aregional sample.The first thing to note is that
country hassome firms that are above the regional median.Productive firms exist in every location.The very bestfirms do not operate only in the biggest economies or the countries with the highest standards of living.Firmscan succeed even in poor investment climates.This isnot to say that reforms are unnecessary.Clearly,morefirms can achieve greater productivity when they oper-ate in a stronger business environment.Based on thesesamples of firms,over three-quarters of firms in Mauritiusand Namibia and two-thirds of firms in Algeria andBotswana operate above the regional median,while only10–15 percent of the firms in Gambia or Burundi doso.Putting this into a broader international context,about 80 percent of firms in a comparable study inBrazil surpass the median African productivity level.InChina this is about 60 percent and,in India,55 percent.Thus,several countries in the region—includingAlgeria,Botswana,Cameroon,Mauritius,Morocco,Namibia,Senegal,Swaziland,and South Africa—have ahigher share of productive firms than China has.
The relationship between productivity and the GCIis not perfect.Egypt has a lower share of productivefirms than would be expected given the quality of itsbusiness environment;Cameroon has a higher share.
But correlations will almost never be perfect whenusing a composite index.The investment climate is notthe only determinant of productivity—and an overallindex can underemphasize a particular dimension that isconstraining to a particular country.As the analysis hereshows,elements of the GCI have relatively more or lessimpact for different groupings of firms and countries.Aggregate analysis is very useful at highlighting the
1 . 2 : F r o m B e n c h m a r k i n g t o I m p a c t : I d e n t i f y i n g W h i c h D i m e n s i o n s M a t t e r