Small Enterprise Responses to Liberalization in Five African Countries

Abstract

This study investigates three issues concerning the role of indigenous entrepreneurs in the transition from a state-led development strategy to a more market-oriented approach with the private sector taking the lead: 1) the effects of liberalizing the policy regime on the conditions for micro and small-scale enterprises (MSEs); 2) the responsiveness of MSEs to changes in incentives and market conditions; and 3) the capacity of MSEs to mobilize savings, absorb employment, and contribute to growth. The study consolidates the results of surveys undertaken to assess the effects of structural adjustment programs (SAPs) on MSEs in five African countries. The positive effects of SAP reforms on the environment for MSEs included greater access to imported inputs, a shift in relative prices in favor of domestic inputs, and less restrictive regulation of private business. On the negative side, many MSEs faced increasingly intense competition from imports and from a growing supply of self-employed workers. Small-scale enterprises (SSEs) with 6 to 49 workers were generally better able to respond to changing conditions than microenterprises with 1 to 5 workers. They were more likely to change product lines, buy new equipment, and seek export markets. SSE owners were also more likely to have entered businees in response to a market opportunity, whereas microentrepreneurs were more likely to have been motivated by "push" factors such as family tradition and lack of other opportunities.