Why are there so few black-owned firms in Africa? preliminary results from enterprise survey data

Why are there so few black-owned firms in Africa? preliminary results from enterprise survey data

The formal private sector in Sub-Saharan Africa: why are there so few black-owned firms

Much of the growth in Sub-Saharan Africa in the past decade has come from extractive industries, rather than from private, entrepreneurial activity. Furthermore, non-extractive activity in the private sector is often dominated by firms owned by ethnic minorities.

This paper analyses the characteristics of the formal private sector in five countries in sub-Saharan Africa, with a particular emphasis on Black African-owned firms. It examines the constraints faced by domestic firms in Kenya, Tanzania, Uganda, Senegal and Benin.

Findings of the paper include:

  • indigenous firms start smaller and grow more slowly; however their rate of growth is positively influenced by whether the owner-entrepreneur has a university degree
  • there is no overwhelming evidence that credit is the binding constraint but there is evidence that indigenous firms get less access to trade credit than firms owned by minority entrepreneurs
  • from a political economy perspective it could be argues that it is convenient to have a private sector that is dominated by ethnic minorities who do not pose a significant threat to political power and often provide a steady stream of rent
  • the “network effect” within minority ethnic groups is significant, particularly in the context of weak information flows and contract enforceability, making minority businesses more successful
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