Applying our theoretical

lens: Africa
Emerging markets
2019
Africa: the continent with the next emerging
markets?
• A forgotten continent (both in regards
to business and to research)
• Many reasons for that:
• Political unrest.
• Wars.
• Low buying power of consumers.
• Fragmentation.
• Poor infrastructure
• Great geographical distances between
trading hubs)
Source:
• Many different trade zones. https://www.bcg.com/publications/2018/pioneering-one-africa-companies-bl
• Many different countries with different (and azing-trail-across-continent.aspx
inefficient) visa and licensing procedures
etc..
Yet…
• Some indications of strong growth
potential
• Several sub-Saharan countries among the
world’s fastest growing.
• But corresponding causes for concern
• Nigeria and South Africa, the two economies
that most frequently are mentioned as
emerging economies, are stalling.

https://qz.com/africa/1522126/african-economies
-to-watch-in-2019-and-looming-debt/
Applying our theoretical lens
• We have already noted voids in hard infrastructure (roads, rails, ports,
communication technologies etc.
• Arguably, hard infrastructure play a relatively greater role in Africa compared
to soft (institutional) due to the geography
• What are the institutional voids beyond the voids in hard
infrastructure?
• Lack of market intermediaries and financial services.
• Lack of institutional support and enforcement.
How is growth possible in spite of
institutional voids?

Firms can:
1) Fill/develop
2) Internalize
3) Substitute
4) Wait
Fill/develop institutional voids
• Lobbying government can be unproductive if government regulation
is not enforced efficiently.
• But acting as market intermediary is and has been an often used
strategy.
• https://www.forbes.com/sites/mfonobongnsehe/2012/09/07/the-ten-most-i
nnovative-companies-in-africa/#50be99215348
• https://www.fastcompany.com/most-innovative-companies/2019/sectors/afri
ca
Growth sectors
• Air transport
• Telecoms
• Financial services
• Health (mobile, low tech)
• Consumer services
• Business and production services
Jumping an evolutionary step?
• Skipping old infrastructure and developing newer.
• Using capabilities of newest technologies for information distribution
and service.
Substituting
• Familiar ownership patterns in terms of
• Family ownership.
• Concentrated ownership.
• Not that many business groups.
• Networks, both business ties and political ties are of importance but
often the dark side of social networks are visible: corruption, rent
seeking, etc.
• Informal institutions only work if they can substitute…
Why do some informal institutions not work
as efficient substitutes?
• Dark sides are detrimental to performance.
• Informal institutions have to be ‘compatible’ with the (non-existing or
inefficient) formal institutions.
“We develop a framework to model explicitly the ways in which formal
and informal institutions interact and to highlight two aspects of
institutions: whether formal institutions are effective in what they claim
to do; and whether the goals of agents in the formal and informal
institutions are compatible and mutually reinforcing or incompatible
and in conflict with each other.”

Estrin, S. and Prevezer, M. (2011) 'The role of informal

institutions in corporate governance: Brazil, Russia, India, and
China compared,' Asia Pacific Journal of Management
28(1):41-67
 Helmke and Levitsky typology
Ineffective formal institutions Effective formal institutions

Compatible goals between Substitutive Complementary

actors in formal and informal
institutions
Conflicting goals between
actors in formal institutions
Replace formal institutions and
help facilitate services and
transactions impossible by
formal contract mechanisms
only.
Performance enhancing.
Competing
Undermine formal institutions
through corruption,
clientelism, oligarchies etc.
Performance reducing.
fill gaps without violating the
formal (in fact enhancing
efficiency of same).
Performance enhancing.
Accomodating
Help getting around effective
but unaligned or illegitimate
for. inst.
Performance stabilizing.

Helmke, G., & Levitsky, S. (2004). Informal

Institutions and Comparative Politics: A Research
Agenda. Perspectives on Politics, 2(4), 725-740
Estrin, S. and Prevezer, M. (2011) 'The role of informal
institutions in corporate governance: Brazil, Russia, India, and
China compared,' Asia Pacific Journal of Management 28(1):41-
67
Question
• Are the informal institutions described in today’s reading compatible
with the formal institutional frameworks of African countries