Conclusion and Policy Options

political interference, and absent or weak domestic capital markets, tax administration, and the like.

Productivity in Sub-Saharan African manufacturing firms has been constrained by the infrastructure gap, as has the overall performance of industry. In Ethiopian manufacturing, road infrastructure is strongly associated with the entry of new firms into the market. In addition, better market connectivity is an even more crucial determinant of the establishment of large firms (Shiferaw et al. 2015). Thus, the quality of road infrastructure shapes the degree of resource misallocation through the mechanism of entry of new firms and exit of incumbents.

In Ghana, substantial misallocation in the manufacturing sector is attributable to unreliable electricity supply (Ackah, Asuming, and Abudu 2018). Moreover, unreliability in electricity supply diminishes the level of investment, which hampers the prospects for economic growth (Estache and Vagliasindi 2007).

Conclusion and Policy Options

Côte d’Ivoire and Ethiopia have seen expansion of their manufacturing workforces over the observation periods. New and young establishments, irrespective of their size, have been the main drivers of manufacturing job growth. And the growth of the countries’ manufacturing workforces has occurred over the same period during which they have had high productivity growth.

A large share of productivity growth is driven by reallocation of market share and resources from low-productivity firms toward more productive firms among incumbents. Plant openings and closures have also resulted in positive contributions. Furthermore, participation in international trade, foreign investment, and clustering tend to enhance productivity in Sub-Saharan African manufacturing at the firm and aggregate levels.

In Ethiopia, aggregate productivity increased by 47 percent between 1996 and 2009. The contribution of market reallocation among incumbents was larger compared with within-plant productivity growth. Furthermore, firm exit played a larger role than entry in boosting productivity. In Côte d’Ivoire, aggregate productivity grew by only 6 percent during 2004–14. Most of the growth came from market reallocation among incumbent firms. In addition, the contribution of entrants was greater than that of exiters; that is, on average, the productivity of entering plants exceeded that of incumbents by more than the productivity of closing plants fell short of that of surviving plants.

One of the key drivers of job growth in Sub-Saharan Africa, the unlimited labor supply, is unlikely to sustain job creation in the near future. Any prospect

for generating enough jobs, especially in the face of the large and growing number of youth in the region, critically depends on rapid, sustained productivity growth. Therefore, efforts toward creating employment opportunities and improving manufacturing productivity should go beyond merely facilitating the entry of new establishments into operation and utilization of existing technologies.

The following policy tools are available for accelerating productivity growth through greater trade openness and integration into regional and global value chains, promotion of innovation (process, product, or both), adoption of new technologies, application of better management practices, and effective entry and competition regulation. • Remove or reduce market entry barriers, including easing licensing requirements, developing a credible legal framework, improving access to finance, and supporting investment in infrastructure. • Improve market conditions for entry and survival of young firms. Young firms have generated most of the observed jobs and productivity growth but are more likely to exit; and, although firm exit is not always bad, interventions to improve market contestability are needed to support the survival of younger firms. • Promote productivity-improving interventions, especially among new and young firms. Such interventions can include skills programs and reliable and affordable transport, logistics, and utilities. • Build and strengthen industry links in the domestic economy. The shortage of high-quality or affordable inputs is a constraining factor in firms’ operations. • Provide support that improves human resource management practices.

Studies attempting to open the black box of productivity are pointing toward management practices as a crucial factor. • Acknowledge firms’ identification of the absence of market demand as the first major obstacle for their operations and full productive capacity utilization.13 To this end, it is necessary to target entering and expanding activities in end markets as well as to improve countries’ competitiveness to capture much of the value added in final consumption. Therefore, effort needs to be exerted toward gaining market access through favorable trade agreements (preferential tariffs, less restrictive nontariff trade barriers, and simplified rules of origin) as well as trade facilitation and logistics. • Work toward more trade openness and participation in regional and global value chains, given that trade exposure is often followed by productivity growth at the firm level. Overall, better trade and investment policies need to be adopted, such as exchange rate regimes, FDI policy (identifying