Innovation and access to finance in African enterprises

Thesis (PhD)--Stellenbosch University, 2017.ENGLISH SUMMARY : Innovation enhances enterprise productivity, and contributes to economic growth (Radas and Bozic, 2009: 438). African firms are lagging behind the rest of the world in terms of innovation (Global Innovation Index, 2015; African Development Bank, 2008). Insufficient capacity to innovate is one of the problems facing African businesses (African Competitive Report, 2013). Moreover, a critical challenge faced by firms in Africa is access to finance and the inability of financially constrained firms to grow (Berger and Udell, 2006; Beck and Demirgüç-Kunt, 2006). Furthermore, studies have examined the role of technology at macro level, but little is known at firm level, and at the same time the few existing studies are skewed towards often publicly traded firms in developed economies (Caineilli, Evangelista and Savona, 2006; Baumol, 2002). With access to firm-level data from emerging African economies provided by the World Bank, this study sought to close that gap and examined whether there was a link between finance and innovation. It further assessed whether the link between finance and innovation was biased towards product innovation or process innovation. This thesis is a collection of essays structured around four topics. Essay one is on access to finance and firm innovation, the second is on the role of finance in product and process innovation in African enterprises, the third essay is on innovation patterns in African enterprises while the fourth essay reviews literature on innovation and finance. Chapter 6 provides a summary and conclusion. We used firm-level data from the World Bank Enterprise Survey (WBES) for selected countries. We first constructed innovation indices using the multiple correspondent analysis (MCA). We applied instrumental variable techniques to cater for possible endogeneity and selection bias to ensure consistent and robust results. Findings show that access to finance as depicted through trade credit, asset finance and overdraft facilities enhances aggregate innovation in all five regionally selected countries – South Africa, Kenya, Nigeria, Cameroon and Morocco. Also, asset finance enhances process innovation in South Africa and both product and process innovation in Cameroon, Ghana and Kenya. Overdraft is significantly linked to both product and process innovations in all five countries. Additional results show that Rwandan enterprises lead in product innovation while Kenya leads in process innovation and aggregate innovation. At the regional level, North Africa leads the continent in process innovation and aggregate innovation while West Africa champions product innovation. These findings have policy implications for African enterprises and emerging economies. This thesis calls for relevant policies to enhance financial sector development, especially the banking sector, and increased access to finance for enterprises. Furthermore, different financial institutions such as microfinance institutions that have demonstrated that they have extended credits to more enterprises should be supported to increase credit to enterprises and young entrepreneurs.AFRIKAANSE OPSOMMING : Geen opsomming beskikbaar