Structural change depends heavily on the accumulation of productive capabilities in a country, a process that takes place more rapidly in larger firms. However, because of the tough business environment, small and necessity-driven firms dominate the private sector in African countries. This makes the case of some large formal firms that exhibit sustained growth and job creation potentials very interesting. This project examined the emergence and evolution of large industrial firms in sub-Saharan Africa, using firm-level data from a sample of the largest manufacturing firms in Nigeria. The rationale is fairly straightforward: if we know what systematically characterised today's large industrial firms when they were born, then it will become easier to design industrial policies to facilitate the emergence of similar firms. This rationale yields a key question: what are the structural, political and entrepreneurial factors that explain the emergence and evolution of large firms in sub-Saharan Africa?
The study is set in Nigeria given the country’s sheer size relative to other countries in sub-Saharan Africa. To answer the research question, a stratified random sample of 106 manufacturing firms in Nigeria with at least 100 employees was selected. The profile of these firms was first constructed from secondary sources. The firms were then contacted to answer specific questions which, in combination with the secondary information, helped to provide a convincingly correct characterisation of Nigeria’s large industrial firms. By analysing the factors that account for the emergence and progression of large firms in the context of less industrialised countries, the study offers insight that is relevant for enterprise policy.
The findings suggest an apparent correlation between the age of firms and their size. This conforms with the standard hypothesis that firms grow as they age. In this case, it seems logical to have policies focused on firm survival since older firms tend to exhibit higher growth over time. The ‘trader turned manufacturer’ which suggests that industrial firms in developing countries often have roots in trading also finds support in the study sample. Finally, the study finds clear evidence of an endogenous relationship between the location of export processing zones (EPZs) and large firms. For policy, this implies the need for investments in the business environment, particularly in infrastructure that support productivity and ultimately, long-term private sector growth.
