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State-business relations, investment climate reform and firm productivity in Sub-Saharan Africa

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Written by Dirk Willem te Velde

This paper examines whether an effective state-business relationship, facilitated by an organised private sector, improves firm performance in seven sub-Saharan African countries: Benin, Ethiopia, Madagascar, Malawi, Mauritius, South Africa and Zambia. The findings reveal that, on average, state-business relationships enhance firm productivity by about 25–35 per cent in sub-Saharan African firms. This effect appears to set in through an improved investment climate—including reduced corruption, better provision of public utilities and information technology development—and higher labour productivity. These gains are not confined to small and medium sized firms but have a similar positive impact on large firms. Further, both domestic and foreign-owned firms appear to benefit from joining business associations, although the impact is somewhat larger for the latter.
Mahvash Saeed Qureshi, Dirk Willem te Velde