Stunted Growth : Why Don't African Firms Create More Jobs?

Many countries in Africa suffer high
rates of underemployment or low rates of productive
employment; many also anticipate large numbers of people to
enter the workforce in the near future. This paper asks the
question: Are African firms creating fewer jobs than those
located elsewhere? And, if so, why? One reason may be that
weak business environments slow the growth of firms and
distort the allocation of resources away from
better-performing firms, hence reducing their potential for
job creation. The paper uses data from 41,000 firms across
119 countries to examine the drivers of firm growth, with a
special focus on African firms. African firms, at any age,
tend to be 20-24 percent smaller than firms in other regions
of the world. The poor business environment, driven by
limited access to finance, and the lack of availability of
electricity, land, and unskilled labor have some value in
explaining this difference. Foreign ownership, the export
status of the firm, and the size of the market are also
significant determinants of firm size. However, even after
controlling for the business environment and for
characteristics of firms and markets, about 60 percent of
the size gap between African and non-African firms remains unexplained.