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Iacovone, Leonardo
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Global Practice on Trade and Competitiveness, The World Bank
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January 31, 2023
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Publication
Stunted Growth : Why Don't African Firms Create More Jobs?
(World Bank, Washington, DC, 2013-12)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. -
Publication
Financing Small and Medium Enterprises in the Republic of South Africa
(World Bank, Washington, DC, 2011)Numerous studies worldwide have highlighted the important contribution made by small and medium-sized enterprises (SMEs) to employment, income and economic growth. In a study of 76 developed and developing economies, Ayyagari and others (2007) found that SMEs account for more than 60 percent of total manufacturing employment and that SMEs contributed significant proportions of Gross Domestic Product (GDP). SME growth requires external financing, but constraints to accessing credit, consistently rated as some of the greatest barriers to the operation and growth of firms, affect SMEs more severely than large firms (Beck and Demirguc-Kunt 2006; Beck and others 2006). The purposes of this report are to: a) analyze the availability of bank finance to SMEs in South Africa and how availability might be enhanced in the context of the economic downturn; and b) offer concrete policy recommendations on how to lessen obstacles to bank SME financing and reduce the negative effects of the economic downturn (or of a similar downturn in future) on access to finance. The report is structured in 5 sections: section two provides a short overview of existing studies and data on SME finance in South Africa. Section three presents the main results of the surveys. Section four provides policy considerations. Section five concludes. -
Publication
Teaching Personal Initiative Beats Traditional Training in Boosting Small Business in West Africa
(American Association for the Advancement of Science, 2017-09-22)Standard business training programs aim to boost the incomes of the millions of self-employed business owners in developing countries by teaching basic financial and marketing practices, yet the impacts of such programs are mixed. We tested whether a psychology-based personal initiative training approach, which teaches a proactive mindset and focuses on entrepreneurial behaviors, could have more success. A randomized controlled trial in Togo assigned microenterprise owners to a control group (n = 500), a leading business training program (n = 500), or a personal initiative training program (n = 500). Four follow-up surveys tracked outcomes for firms over 2 years and showed that personal initiative training increased firm profits by 30%, compared with a statistically insignificant 11% for traditional training. The training is cost-effective, paying for itself within 1 year. This is the author's version of the work. It is posted here by permission of the AAAS for personal use, not for redistribution. The definitive version was published in Science Vol 357, issue 6357: 1287-90. -
Publication
Personal Initiative Training Leads to Remarkable Growth of Women-Owned Small Businesses in Togo
(World Bank, Washington, DC, 2018-01)Standard business training programs aim to boost the incomes of the millions of self-employed business owners in developing countries, by teaching accounting, marketing and other basic business skills. However, research shows limited impacts of this traditional business training approach. Through an experiment in Togo, we introduced the personal initiative training program, a new and effective psychology-based entrepreneurship training that outperforms traditional business training. The personal initiative training increased firm profits in Togo by 30 percent relative to a control group, compared to no significant impacts from a traditional business training. Personal initiative training led to more than just a boost in profits for micro entrepreneurs. After the training business owners were more innovative, introduced new products, borrowed more and made larger investments. The personal initiative training was particularly effective for female entrepreneurs, for whom traditional training has often been in effective. Women who received personal initiative training saw their profits increase by 40 percent, compared to 5 percent for traditional business. This study’s findings make a strong case for the role of psychology in better influencing how small business training programs are taught in West Africa and beyond. It shows the importance of developing an entrepreneurial mindset in addition to learning the business practices of successful entrepreneurs. Based on these promising results, the personal initiative training is being implemented in programs in Mozambique, Mauritania, Ethiopia, Jamaica, and Mexico. -
Publication
Gender and Finance in Sub-Saharan Africa : Are Women Disadvantaged?
( 2011-02-01)This paper assesses whether there is a gender gap in the use of financial services by businesses and individuals in Sub-Saharan Africa. The authors do not find evidence of gender discrimination or lower inherent demand for financial services by enterprises with female ownership participation or by female individuals when key characteristics of the enterprises or individuals are taken into account. In the case of enterprises, they explain this finding with selection bias -- females are less likely to run sole proprietorships than men, and firms with female ownership participation are smaller, but more likely to innovate. In the case of individuals, the lower use of formal financial services by women can be explained by gender gaps in other dimensions related to the use of financial services, such as their lower level of income and education, and by their household and employment status.