An Empirical Evidence of SMEs in 20 Sub-Saharan Africa Countries - Essay Example

RESEARCH PROPOSAL ON Access to Finance and Firms’ Growth Constraints: An Empirical Evidence of SMEs In Sub-Saharan Africa BY IBRAHEEM OLASUNKAMI AZEEZ Table of Contents Table of Contents 2 1. Introduction 3 1.2. Problem Statement 3 1.3. Purpose of the Research 3 1.4. Research question 4 1.5. Research Objective Development 4 1.6. Scope of Study 4 2. Literature review 5 3. Research Methodology 8 3.1. Research Design 8 3.2. Sampling 8 3.3. Data collection procedures 8 3.4. Data analysis 9 5. Ethics 9 6. Timeline 9 Reference list 11 Bibliography 13 1. Introduction Economic recuperation is playing crucial role in achieving global growth for the SMEs. However, in the developing countries, financial accesses and capital recovery rates reported uneven. Economic and financial activity in the Sub-Saharan Africa increased during the year 2013 (Data.worldbank.org, 2015). These countries accounted with a high investment growth and strong capital investment plans. Sub-Saharan African countries reported with a highly sensitivity among economic growth, poverty alleviation, and SME growth rate. SME growth rate are facing the risk of low product prices and lower access of capital flows. SMEs of nearly 20 Sub-Saharan African countries will be investigated in this research paper. It will help in highlighting the affects of finance availability and growth constraints of the SMEs in the particular region (Openknowledge.worldbank.org, 2015). 1.2. Problem Statement In the Sub-Saharan Africa region, SMEs are the source of economic driving forces. Mainly, such firms are influencing economy of the countries by creating high prospect of jobs and reducing poverty level (Agbetsiafa, 2003). Economic scenario of African countries is favouring SMEs in terms of achieving the expected growth. Rapidity of growth increased in the Sub-Saharan Africa during the year 2014, than the previous years. Moreover, growth rate is expected to be less volatile during the fiscal years 2015 (Openknowledge.worldbank.org, 2015). Sub-Saharan Africa illustrates significant variation among the growth rate around the countries. African countries are growing in a speedy manner as they are having high internal resources (siteresources.worldbank.org, 2015). 1.3. Purpose of the Research Aim of the current research is to outline the impacts of access to finance and firms’ growth constraints (Baldwin and Robert-Nicoud, 2006). The study will be citing the empirical evidence of SMEs in Sub-Saharan African countries like ‘Nigeria, Ghana, Togo, Ivory Cost, Senegal, Niger, Mali, Guinea Bissau, Guinea, Gambia, Mauritania, Senegal, Sierra Leone, Liberia, Cape Verde, Burkina Faso, Uganda, Kenya, Tanzania and Cameroon.’ 1.4. Research question In order to conduct the research following research question will be used to increase the quality of investigation. 1. How access to finance affects firms’ growth SMEs of 20 sub-Sahara African countries? 2. How the cost of the external financial resources are controlling or restraining growth of the SMEs of the countries. 3. What are the impacts of innovation and assets securitisation on sub-Sahara African firm’s growth? 1.5. Research Objective Development To investigate on the link between access to finance and firms growth of SME of the 20 Sub-Sahara African countries. To analyse the available external financial investment sources and cost of the sources. To investigate the impact of individual levels of motivation, education and management on the growth of firms of the 20 countries 1.6. Scope of Study An in-depth analysis of access of finance and firms growth constraints will be done in the current study. It has been observed that the accessibility of external finance sources is highly interconnected with the number of small or medium enterprises. Funding sources are used as the sign of entrepreneurship, enthusiasm and innovation (Asiedu et al., 2013). Moreover, it can be said that availability of finance empowers the SME of ‘Nigeria, Ghana, Togo, Ivory Cost, Senegal, Niger, Mali, Guinea Bissau, Guinea, Gambia, Mauritania, Senegal, Sierra Leone, Liberia, Cape Verde, Burkina Faso, Uganda, Kenya, Tanzania and Cameroon’, take advantage of growth. They will also plan for feasible investment opportunities and achieve more equilibrium of money or financial segment. SME firms are planning to achieve more productive asset portfolio which provides developed financial infrastructure (siteresources.worldbank.org, 2015). Different types of the regression models will be used to develop more critical evaluation or firms growth rate and access to finance. Model 1: Firm-Level Obstacles and Institutional Development Firm level obstacles= α +β1 Priv*small + β2 Priv*medium + β3 Priv*large + β4 law order *small + β5 law order *medium + β6 law order *large + β7 corrupt *small + β8 corrupt * medium + β9 corrupt * large + β10 small + β11 medium + ε Model 2: Firms growth rate: Firm growth= α +β1 government+ β2 foreign + β3 exporter+ β4 subsidised+ β5 number of competitors+ β6 manufacturing + β7 services + β8 inflation + β9 GDP+ β10 obstacles + ε Model 3: Sensitivity test: Firm growth rate= α +β1 government+ β2 foreign + β3 exporter+ β4 subsidised+ β5 number of competitors+ β6 manufacturing + β7 services + β8 inflation + β9 GDP+ β10 obstacles + β11 growth + β12 Financing + β13 corruption + ε 2. Literature review Empirical researchers like Aterido, Beck and Iacovone (2013) have established relation between industrialisation and economic development. Such studies pointed out a change that signifies firm size oriented policies are becoming obsolete. Recently, SME of the Sub-Sahara African countries are using the policies focussed on the business environment. In addition, SME markets of the sub-Sahara African countries like “Nigeria, Ghana, Togo, Ivory Cost, Senegal, Niger, Mali, Guinea Bissau, Guinea, Gambia, Mauritania, Kenya, Tanzania and Cameroon” are facing various restraints (siteresources.worldbank.org, 2015). Such markets are having low entry and exit barriers, property rights are defined very well and feasible contract enforced. In addition, it has been observed that the World Bank is aiding such countries in order to increase the access to financial funds (Baldwin and RobertNicoud, 2006). According to Coad (2009), business environment is changing rapidly as the rate of competition and private commercial transactions are increasing in the Sub-Sahara African countries. Researchers also observed that firms are facing cross-country affairs in terms of linking the SMEs growth rate, economic growth, and poverty alleviation during the recent times (siteresources.worldbank.org, 2015). These sorts of issues outlines that availability of the external capital also determines the constraints of growth among SMEs. Financing barriers can be recognised as the major growth constrains for small and medium firms of the African segment. Such restrictions are limiting the firms to achieve optimal volume in 20 mentioned countries (Fowowe, 2011). Small firms are facing the challenge of limited finance access of various financial sources and as a result, rate of investment and working capital reduced. Trade credit options of commercials bank are the modified versions of lending which are supporting SMEs of Sub-Sahara African countries (Worldbank.org, 2015). Thus, factoring and credit scoring techniques are highly used by the firms of developing countries. On the other hand, cross-country regressions affect GDP and per capita growth of the SMEs of the Nigeria, Ghana, Togo, Ivory Cost, Gambia, Kenya and Cameroon (Worldbank.org, 2015). These countries are mainly specialised in manufacturing employment sector, so they are affecting growth rate in the countries (Asiedu et al., 2013). ‘Instrumental variable regressions’ clearly manage overturn financial and foreign exchange rate biasness. Therefore, it can be cited that significance relationship exists between the SMEs and economic growth rate (Aterido, Beck and Iacovone, 2013). Various empirical research literatures disagreed that, Sub-Sahara African countries minority ethnic groups SME firms can take additional advantages. Earlier it was assumed that such firms are creating private sector networks for gaining operational efficiency (Baldwin and Robert-Nicoud, 2006). Moreover, growth rate of the firms are depending on various external environmental measures. Firms of the area are using the measures like inadequate professional alternatives, removal or attrition related threats. Such networks are created through implemented or forceful collaboration mechanism (Coad, 2009). ‘Nigeria, Ghana, Togo, Ivory Cost, Senegal, Niger, Mali, Guinea Bissau, Guinea, Gambia, Mauritania, Senegal, Sierra Leone, Liberia, Cape Verde, Burkina Faso, Uganda, Kenya, Tanzania and Cameroon’ are facing huge challenge from two different dimensions (Fowowe, 2011). Lower commodity prices: It has been observed that many of the countries are having low demand in comparison to the increased amount of supply. The issue will be leading the SMEs to reduce the rate of products and service prices. However, such reduction can lead to a potential loss situation (Lentz and Mortenson, 2005). Strict fiscal policies: Capital flows are essential in terms of achieving growth for various SMEs. It will help them in developing the safeguarding policies in process of “normalization in global financing conditions” (Worldbank.org, 2015). External financial market and capital flow volatility risks of the Sub-Sahara African countries are affecting SME or other firm’s growth rate. Such conditions are requiring quick adjustments of the strategies and policies as per the economic standards of various critical situations (Ngongang, 2013). On the other hand, Penrose and Pitelis (2009) argued that SMEs are also facing huge challenges in terms of managing cost of debt or external financing sources. It has been observed that the firms are facing increasing global capital or debt interest rates. Public and private debts are available through numbers of channels in the Sub-Sahara African countries (Samuels, Biddle and Emmett, 2009). The SMEs are facing direct and indirect effects of high interest rates, which they are liable to pay for using external financial debt. Sub-Sahara African countries SMEs will be facing an intense indirect challenge because of the interest rates of the locally collected debts. Currency exchange rate fluctuations are affecting profitability, revenue generation and growth. African countries are using financial channel in terms of developing various factors and frameworks like debt portfolio measurement, firm’s dependence on external financing bodies or sources and flexibility to meet the risks of the exchange rate shocks (siteresources.worldbank.org, 2015). Sub-Sahara African countries are aiming to use borrowed capital from the external sources. Initially, they were collecting funds from various multiparty organisations as the concessional interest rate (Steinbuks, 2012). Fixed interest rates are charged for using such funds, which reduces interest rate risk on such investment instruments. Bilateral lenders are charging the firms with fixed interest rates. Most of the Sub-Sahara African countries are using variable-rate of interest for external debts provided by different financial institutions (Tucker, 2008). SME firm’s growth rate depends on the fixed spread rate that is offered in the financial market of these countries. Moreover, such African market capitalisation rate are expressed with the help of LIBOR rates (Worldbank.org, 2015). However, Vinturella and Erickson (2004) criticised that international debt interest rate shock affected the loan users SMEs of Sub-Sahara African countries. It has been observed that SMEs of the Angola, Botswana, Côte d’Ivoire, and South Africa reports maximum levels of variable-rate for their external debt (siteresources.worldbank.org, 2015). 3. Research Methodology 3.1. Research Design In the educational research, researcher will have the options of three different types of research designs (Ketchen and Bergh, 2006). It will help in structuring or formatting research and collecting suitable or relevant information and facts regarding current topic. Exploratory, explanatory and descriptive research designs can be used by researcher (Jha, 2008). In the current research, descriptive design will be used in terms of obtaining best possible relation between the access to financial sources and SME firm’s growth restriction in Sub-Saharan African countries. Mainly, descriptive design will be helping in citing accurate information in the study and deduce conclusion. 3.2. Sampling The sampling size will be including nearly 400 SMEs of Nigeria, Ghana, Togo, Ivory Cost, Senegal, Niger, Mali, Guinea Bissau, Guinea, Gambia, Mauritania, Senegal, Sierra Leone, Liberia, Cape Verde, Burkina Faso, Uganda, Kenya, Tanzania and Cameroon. Mainly, Regional Program on Enterprise Development (RPED) segment of the World Bank will be used to collect relevant data on access of finance and growth rate of firms (Data.worldbank.org, 2015). 3.3. Data collection procedures Current study will be using the quantitative data collection in order to outline exact relation or fluctuation of growth rate access to finance. Mainly the resources will be collected from both primary and secondary sources. Primary data will be collected by conducting interviews on the representatives of the SMEs. On the contrary, secondary data will be collected from world bank RPED, SMEs corporate websites, books, financial websites and various empirical research journals. Such data collection process will help in gathering most number of empirical evidence of SMEs existed in 20 countries of the Sub-Saharan Africa (Samuels, Biddle and Emmett, 2009). 3.4. Data analysis Correlation, regression, and measure of dispersion method will be used in analysing collected data. Microsoft excel software will be used in analysing the collected data and using statistical formulas effectively. Moreover, results will be outlined by using graphs and tables. 5. Ethics Research ethics are mainly proper policies that are concentrating on the beneficiary of respondents. Such consideration includes proper ideology for data application, respondents’ participation and data selection process. Data application: collected materials and resources will be used in the educational purpose only. Commercial usage of the collected data will be avoided. Involvement of the respondents: researcher will not influence the participants while gaining the response. Moreover, current study will be promoting voluntary participation among the respondents. This ethical measure will help in gathering genuine response from the respondents. 6. Timeline A Gantt chart will be used to conduct the current research chronologically and systematically. Mainly, the research will be completed within three years. Research activities / stages in months 0-6 months 7-12 months 13-18 months 19-24 months 25-30 months 31-36 months Research topic selection ü    Primary and secondary data collection sources ü    ü    Creating a blueprint of the research ü    Preparing the literature review ü    ü    Research Plan need to be formed ü    ü    Selection of the most suitable Research Techniques for the research ü    Primary and secondary data collection ü    ü    Collected data analysis and deduce results ü    ü    Creating a data finding statement ü ü    Conclusion will be drawn on the concerned topic ü ü    A Rough Draft will be formulated for the project ü    Final study will submitted ü    Reference list Agbetsiafa, D., 2003. The finance growth nexus: Evidence from sub-saharan Africa. International Advances in Economic Research, 9(2), pp.172-172. Asiedu, E., Kalonda-Kanyama, I., Ndikumana, L. and Nti-Addae, A., 2013. Access to Credit by Firms in Sub-Saharan Africa: How Relevant is Gender?. American Economic Review, 103(3), pp.293-297. Aterido, R., Beck, T. and Iacovone, L., 2013. Access to Finance in Sub-Saharan Africa: Is There a Gender Gap?. World Development, 47(2), pp.102-120. Baldwin, R. and RobertNicoud, F., 2006. Trade and growth with heterogenous firms. Cambridge, Mass.: National Bureau of Economic Research. Coad, A., 2009. The growth of firms. Cheltenham, UK: Edward Elgar. Data.worldbank.org, 2015. Data | The World Bank. [online] Available at: [Accessed 30 June 2015]. Fowowe, B., 2011. The finance-growth nexus in Sub-Saharan Africa: Panel cointegration and causality tests. Journal of International Development, 23(2), pp.220-239. Jha, N., 2008. Research methodology. Chandigarh: Abhishek Publications. Ketchen, D. and Bergh, D., 2006. Research methodology in strategy and management. Amsterdam: Elsevier JAI. Kumar, R., 2005. Research methodology. London: SAGE. Lentz, R. and Mortenson, D., 2005. An empirical model of growth through product innovation. Cambridge, Mass.: National Bureau of Economic Research. Ngongang, E., 2013. Sensitivity of the Investments of Sub-Saharan Firms to Financial Constraints. Journal of Mathematical Finance, 3(1), pp.211-221. Openknowledge.worldbank.org, 2015. Entrepreneurship and Firm Perfor mance in Sub - Saharan Africa. [online] Available at: [Accessed 30 June 2015]. Penrose, E. and Pitelis, C., 2009. The theory of the growth of the firm. Oxford: Oxford University Press. Samuels, W., Biddle, J. and Emmett, R., 2009. Research in the history of economic thought and methodology. Bingley: Emerald JAI. siteresources.worldbank.org, 2015. Challenges of African Growth. [online] Available at: [Accessed 30 June 2015]. Steinbuks, J., 2012. Firms Investment under Financial and Infrastructure Constraints: Evidence from In-House Generation in Sub-Saharan Africa. The B.E. Journal of Economic Analysis & Policy, 12(1), pp.175-187. Tucker, R., 2008. Driving growth through innovation. San Francisco: Berrett-Koehler Publishers. Vinturella, J. and Erickson, S., 2004. Raising entrepreneurial capital. Oxford: Elsevier. Worldbank.org, 2015. Africa’s Pulse. [online] Available at: [Accessed 30 June 2015]. Bibliography Aghion, P., T. Fally and S. Scarpetta (2007) ‘Credit Constraints as a Barrier to the Entry and Post-Entry Growth of Firms’, Economic Policy, 22: 731–79. Ayyagari, M., Beck, T., Demirgu¨c¸-Kunt, A., in press. Small and medium enterprises across the globe: A new database. Small Business Economics. Beck Thorsten and Cull Robert 2014. SME Finance in AfricaBeck Thorsten and Asli Demirguc-Kunt 2006. Small and medium-size enterprises: Access to Beck, T., Demirguc-Kunt, A., Levine, R., 2005. 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