Good relations between the public and private sectors have been shown to contribute to economic growth. But less is known about the impact on individual businesses (known as firms), especially in sub-Saharan Africa. How do state-business relations affect firm performance in Africa?

Research from the University of Manchester and the Overseas Development Institute, both in the UK, explores the links between state-business relations and firm performance in Zambia. The researchers focus on the effects of a well organised private sector and government lobbying on firm performance.

The research draws on World Bank data from 2003 on over 200 service and manufacturing businesses of various sizes located in different regions of Zambia. The researchers use this information to examine the impact of state-business relations on firm productivity (how efficiently firms use capital and labour).

In Zambia, organised relations between government and business began in 1991 with the creation of the Zambian Investment Centre, designed to attract investment. Recent steps to strengthen state-business relations include the formation in 2002 of the Zambian Business Forum, a grouping of the five main national business associations.

The researchers identify three main ways in which good relations between the public and private sectors affect firm productivity:

• Firms can influence public policy in areas which impact directly on their business, such as taxes and other regulations or skills development.
• Firms can influence public spending choices, for example lobbying for higher investment in infrastructure and information and communication technologies.
• Regular dialogue between the public and private sectors means that firms are aware of new policies and emerging trends, reducing the uncertainty which can prevent businesses investing and growing.

The presence of well organised and capable private sector organisations (such as business associations) and a well organised government sector are central to successful state-business relations.

Key findings on Zambian businesses include:

• Being a member of a business association improves firm productivity in the range of 37 to 41 percent. This works mainly through government lobbying resulting in more business-friendly public policies and government spending decisions.
• Providing information on international and domestic markets is also important for raising firm productivity.
• Joining a business association is particularly useful for small and medium sized firms (100 employees or less).
• Business associations help smaller firms influence government policy, enabling them to pool resources and build a better case.
• Foreign-owned firms lobby the government more effectively than domestic firms.

The research shows that good relations between the private and public sectors improve the effectiveness of government efforts to support business.

The researchers conclude that:

• A well organised private sector is important for improving the performance of individual firms.
• Good relations between the private and public sectors are important for improving the performance of individual firms.
• Small and medium sized firms would benefit from joining business associations.
• Further work is needed in Zambia and other African countries to increase understanding on the impact of business associations and public-private sector relations.

Source(s):
‘State-Business Relations and Firm Performance in Zambia’, IPPG Discussion Paper Series Number 5, IPPG: Manchester, by Mahvash Qureshi and Dirk Willem te Velde, 2007 (PDF) Full document.

Funded by: UK Department for International Development

id21 Research Highlight: 15 February 2008

Further Information:
Dirk Willem te Velde
Overseas Development Institute
111 Westminster Bridge Road
London, SE1 7JD
UK

Tel: +44 207 9220300 Fax +44 207 9220399
Contact the contributor: dw.tevelde@odi.org.uk

Overseas Development Institute (ODI), UK

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