The impact of trade facilitation on African SMEs’ performance

Abstract

Whilst contemporary literature indicates that the business environment (BE) impacts almost all entrepreneurial activities, there are indications that the unique business and institutional setting in Africa (with its challenges and opportunities) and the nature of SMEs (their strengths and weaknesses), among other factors, lead to the context-specific impact of regulations on the performance of African SMEs. Using regressions and propensity score matching methods on a panel of 39,461 firm observations (27 African countries) from the World Bank Enterprise Surveys, we unearthed evidence to suggest that whilst enabling tax administration and business licensing regulations improve SMEs’ performance, trade facilitation impedes African SMEs’ performance. Furthermore, the institutional context of competition (from foreign firms) worsens trade facilitation’s negative impact on African SMEs’ performance. These findings suggest a fine-tuning of BE regulations in African countries. Trade facilitation, for example, must be carefully thought through and implemented in a way to benefit SMEs.

Abstract

Trade facilitation’s negative impact on African SMEs’ performance. This study contrasts trade facilitation’s impact on African SMEs’ performance with enabling tax administration and business registration regulations. The findings suggest that whilst enabling tax administration and business licensing regulations improve SMEs’ performance, trade facilitation impedes African SMEs’ performance. Moreover, the institutional context of competition (from foreign firms) exacerbates trade facilitation’s negative impact on African SMEs’ performance. This study’s main implications are: (1) trade facilitation and competition policies in Africa must be carefully thought through and implemented in such a way as to benefit SMEs. And (2) scholars may find useful the evidence that country-level proxies of regulations compliment consistently firm-level measures of regulations.