dfid research project: ‘enabling innovation and ... · project title ‘enabling innovation and...
TRANSCRIPT
May 2018
Research project funded by the UK’s Department for International Development
(DFID/grant number PO 5639) implemented by Tilburg University and Radboud University Nijmegen
http://www.tilburguniversity.edu/dfid-innovation-and-growth/
DFID Research Project:
‘Enabling Innovation and Productivity Growth in Low
Income Countries (EIP-LIC)’
Country Report Ghana
Acknowledgments
In 2013, the Department for International Development (DFID) awarded a grant to Tilburg University
and Radboud University Nijmegen for a 4-years research project ‘Coordinated Case Studies –
Innovation for Productivity Growth in Low Income Countries’ (PO 5639)1. The sizeable research
project, implemented in cooperation with academic institutions in African and Asian countries, resulted
in an extensive series of scientific papers and reports, databases and more practical policy oriented
documents.
On behalf of Tilburg University and Radboud University Nijmegen I would like to thank the British
people and DFID, in particular the Growth Research Team, for the support in this project. The research
output on Ghana was amongst others the result of a fruitful research cooperation with the University of
Ghana, in particular with Dr. William Baah-Boateng and Dr. Michael Danquah. Moreover, a randomized
control trial has been carried out in collaboration with Innovation for Poverty Action (IPA) in Accra and
the National Board for Small Scale Industries (NBSSI). We are grateful for their constructive
collaboration.
This report presents the findings of the research activities in Ghana. We hope that it is informative for
policy makers within governmental agencies, donors and NGOs involved in the promotion of innovation
in manufacturing SMEs in Ghana and the region. It is also targeted at SME owners and SME branch
organisations who could use the report as reference material for reflecting on and formulating the
management and business strategies. For the academic community with similar research interests, it may
provide useful insights to providing ideas or supporting them to identify and/or validate research
questions and hypotheses.
Prof. Lex Meijdam (Dean Tilburg University)
Disclaimer:
This material has been funded by UK aid from the UK government; however the views expressed do
not necessarily reflect the UK government’s official policies.
1 The research project was later renamed into Enabling Innovation and Productivity Growth in Low Income
Countries’ (EIP-LIC).
Basic data of the project
Project title ‘Enabling Innovation and Productivity Growth in Low Income Countries’ (EIP-
LIC). Formerly: ‘Coordinated Case Studies – Innovation for Productivity Growth in
Low Income Countries’.
DFID RP reference number PO 5639
Project objective To fill research gaps in the understanding of factors, institutions and policies that can
increase innovation and productivity in low-income countries in Africa and Asia.
Project period 1 May 2013 – 30 September 2018
Lead partner Tilburg University
Project Director: Prof. Lex Meijdam (e-mail: [email protected])
Coordinator: Jaap Voeten (e-mail: [email protected])
Partner Radboud University Nijmegen
Prof. Patrick Vermeulen (e-mail: [email protected])
Countries of study Kenya, Tanzania, Vietnam, Ethiopia, Uganda, Ghana, South Africa, India,
Indonesia, Bangladesh
Project website www.tilburguniversity.edu/dfid-innovation-and-growth
Contents
Executive summary ............................................................................................................................................... 1
1 Introduction ................................................................................................................................................... 7
2 Project approach and methodology ............................................................................................................... 9
2.1 Research ............................................................................................................................................... 9
2.2 Policy and research uptake ................................................................................................................. 12
3 Qualitative study in Ghana .......................................................................................................................... 15
3.1 Case study method ............................................................................................................................. 15
3.2 Selected cases ..................................................................................................................................... 15
3.3 Research and policy issues ................................................................................................................. 25
4 Innovation systems ..................................................................................................................................... 31
4.1 Innovation, downsizing and labour flexibility ................................................................................... 31
4.2 Innovation and the role of informal institutions ................................................................................. 32
4.3 Gender diversity and innovation ........................................................................................................ 33
4.4 Imported inputs and product innovation ............................................................................................ 35
4.5 Innovation and export ........................................................................................................................ 36
5 Finance for Productivity Growth ................................................................................................................ 39
5.1 RCT: Improving small sized enterprises financial performance through goal-setting ....................... 39
5.2 Trade credit and access to finance ...................................................................................................... 40
5.3 Technology adoption and mobile money ........................................................................................... 41
5.4 Finance and demand for skill ............................................................................................................. 43
References ........................................................................................................................................................... 45
Annexes .............................................................................................................................................................. 47
Annex 1: Series of EIP-LIC working papers .................................................................................................. 47
Annex 2: Highlights of DFID/World Bank EIP-LIC survey Ghana ............................................................... 49
Annex 3: EIP-LIC evidence addressing the original DFID research questions .............................................. 63
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Executive summary
From 2013 to 2018, the British Department for International Development (DFID) funded a research project on
innovation and productivity growth with special reference to low income countries (LICs), implemented by
Tilburg University and Radboud University Nijmegen. The project focused on understanding the factors,
institutions, and policies that can increase business innovation and productivity growth, particularly in
manufacturing small and medium sized enterprises (SMEs). The research was organised within two thematic
areas: ‘Innovation Systems’ and ‘Finance for Productivity Growth’. Research teams conducted the field work in
ten countries in Africa and Asia, including Kenya, Tanzania, Vietnam, Ethiopia, Uganda, Ghana, South Africa,
India, Indonesia and Bangladesh. Various academic institutions and World Bank offices in these countries were
actively engaged as partners in the research.
A key feature of the project is the combined quantitative and qualitative research approaches involving enterprise
surveys, randomised control trials (RCTs) and case studies. The collection of original data resulted in a series of
scientific papers, reports, policy briefs and open-access databases. The research output is targeted at academics
in development research as well as at innovation policy makers within governments, businesses and development
agencies, with a view to valorising research outcomes and promoting evidence-based policy making.
The research was structured around the following set of research questions, initially formulated by DFID to
frame the research:
What firm-level and regional-level factors hinder or foster the engagement of firms in innovative
activities and commercialise the outcomes of their innovative activities?
What is the impact of in-house innovation activities versus collaborative innovative activities or
technology acquisition activities on the innovative performance of firms in developing countries?
What is the role of economic spillovers within clusters of firms in fostering economic growth and
innovation?
What are the most critical barriers to the process of innovation and the diffusion of technology?
What types of links between the public/private sectors, universities, governments, NGOs and the private
sector are most conducive to innovation activity?
What is the role of demand side versus supply side policies?
In the course of the project implementation, new research questions emerged. Both original and emerged
research questions were addressed in the various scientific outputs.
This ‘Ghana Country Report’ presents an overview of the scientific output and policy implications relating to
Ghana. The scientific output comprises a qualitative research report on research and policy issues and five papers
within the ‘Innovation Systems’ theme. The ‘Finance for Productivity Growth’ team conducts a randomized
control trial (RCT) in Ghana. By the time of the writing of this report, the finance team is analyzing the data and
writing papers to be available on the project website in August 2018. Furthermore, the ‘Finance and Productivity
Growth’ theme produced three papers on neighbouring countries, which as relevant in the context of EIP-LIC.
In Annex 1 a comprehensive list of all research working papers written in the framework of EIP-LIC is presented.
The key DFID/World Bank survey findings for Ghana are presented in Annex 2 and the research addressing the
original DFID questions is presented in Annex 3.
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Qualitative research
The qualitative report is based on data collected through open semi-structured interviews with owners and
managers of SMEs in Accra and the surrounding area. The qualitative report provides context to the other
research activities to validate, compare and complement existing theory in literature and research design and
hypothesis development with contemporary bottom-up realities on the ground in Ghana, as perceived by
manufacturing SME owners and managers. Specifically, the case descriptions illustrate the different ways in
which companies in Ghana introduce new products, processes, technology, or machinery.
Although the innovation in the Ghanaian cases is not ‘new to the world’ high tech innovation, but mostly
incremental technology adoption, it is still critical for the firms’ survival and growth. The interviewed owners
and managers innovate step-by-step to see what works and what does not. They mention that the skills and
knowledge gained through formal education do not match the company’s requirements. No formal support from
innovation systems institutions was received in their efforts to innovate. In fact, most owners indicated that
formal government institutions, represented by government officials, make their business environment even
more challenging.
Innovation systems
The first scientific paper within the ‘Innovation Systems’ theme assesses the effect of different forms of labour
flexibility on innovation during downsizing across nine developing countries in Africa, including Ghana, and
South Asia. The results of the study suggest that downsizing a firm’s workforce negatively impacts process
innovation in SMEs in emerging nations. However, the study indicates that labour flexibility can be a way for
firms to overcome the innovation challenges associated with downsizing. The researchers find that both
numerical flexibility, namely the use of temporary employment, as well as functional flexibility such as
employee training, can alleviate the negative impact of downsizing on innovation. Regarding policy
implications, the research suggests that managers of SMEs, in Ghana amongst others, take functional flexibility
into account in their business strategies, because an increasing percentage of employees having received training
will positively moderate the relationship between downsizing and innovation. Focusing on the psychological
impact downsizing has on the remaining employees, employability as a human resources management strategy
could be a substitute for employment security during downsizing to protect their psychological contract with the
firm. Managers could thus consider functional flexibility as a means to mitigate downsizing’s negative effect on
innovation. In particular, firms might consider training a core group of staff to distribute existing knowledge
among the remaining firm members, to create new knowledge as well as to increase employees’ employability.
The second scientific paper examines the role of informal institutions in a context of institutional voids. The
institutional voids debate in international business suggests that firms face constraints on innovation where
formal institutions are weak or less efficient. The focus on ways of mitigating the risks posed by institutional
voids has been on informal institutions, suggesting a substitutive interaction between formal and informal
institutions. In an attempt to broaden the scope of research on institutional voids, the paper investigates the nature
of the relationship between formal and informal institutions in a comparative study of firm innovation in Ghana
and other sub-Saharan Africa. The research shows that informal institutions not only substitute underdeveloped
formal institutions, but they also complement or accommodate with more developed formal institutions. The
results also provide managerial implications that firms have different configurations of internal capabilities and
external institutional resources at their disposal to generate innovation in developing countries.
The third paper analyses the relationship between gender diversity and innovation output of firms. The research
shows that gender diversity at all levels in the organisation has a positive effect on innovation. Furthermore, the
research illustrates that a country’s level of economic opportunity for women plays an important role in the
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relationship between gender diversity and innovation. Policy makers must acknowledge the value of gender
diversity for innovation and create awareness among managers and employees that innovation emerges and
blossoms from gender diversity at the firm level. Government agencies could develop special policies and
programmes which encourage and support firms to hire a more gender-balanced workforce, secure more female
top managers, and develop a gender diverse ownership structure. This could take the form of awareness raising
programmes explaining the particular benefit of gender diversity for a firm’s likelihood to innovate. Furthermore,
the introduction of tax advantages, subsidies or other incentives targeted at increased gender diversity at all
hierarchical levels within a firm could be a driver for increased gender balance. An additional avenue for policy
makers is to encourage a social perception of women as being equally valuable members of society, with the
same rights and obligations as men.
The fourth scientific paper examines investigates the effect of newly imported input varieties on product
innovation in Ghana, Tanzania, Kenya, Uganda and Bangladesh. The research aims to fill this gap and addresses
in particular the role of intermediate inputs for innovation in developing countries. The research finds evidence
that the number of newly imported intermediate inputs has a significant positive impact on product innovations,
in particular, those that use new inputs and innovations for which a new input is an essential feature. This
suggests that this effect comes from access to better quality imports. Further insights in the data revealed that a
significant proportion of the innovations are incremental changes to existing products, and that most of the
innovations are new only to the firm. A relevant policy aspect is that small incremental innovations that
specifically address local challenges can bring important changes that improve welfare. Policy makers in LICs
should place greater emphasis on the importance of the effect of inputs on innovation and productivity growth.
Policies involving openness to trade could be an important contributor to input-essential innovations in
developing countries. Policies to increase openness may therefore have a positive effect on the economy through
increased innovation, although there seems to be a substitution effect from non-input using innovations to
innovations that use new inputs. Further research on the origin effect of imported intermediate inputs is warranted
to base thorough conclusions on this finding.
The fifth scientific paper investigated the bi-directional relationship between innovation and exporting in four
countries in Sub-Saharan Africa, amongst others in Ghana. The research finds that the relation between
innovation and subsequent exporting is positive and significant. The other way around, there is a positive but
non-significant relation between exporting and subsequent innovation. The research further indicates that market
creation mediates the innovation-exporting relationship because the innovation process entails the introduction
of new products and services to the marketplace. Moreover, customer feedback mediates the relation between
exporting and innovation to a large extent. Innovation policies aimed at fostering product innovation by
providing incentives may be crucial for exporting. Customer feedback mediates the exporting-innovation
relation to a very large extent. Therefore, policies focusing on information and communications technology
infrastructure investment are vital in enabling faster response to market needs. Additionally, export promotion
policies encompassing instruments such as export subsidies are likely to play a key role in stimulating
innovation.
Finance for productivity growth
The RCT under analysis is entitled ‘Improving small sized enterprises financial performance through goal-
setting: Evidence from an RCT with Cassava Producers in Ghana’, organized in collaboration with NGO
‘Innovations for Poverty Action (IPA)’ in Accra. IPA brings together researchers and decision-makers to design,
rigorously evaluate, and refine these solutions and their applications, ensuring that the evidence created is used
to improve the lives of the world’s poor. The finance team and IPA created a representative sample of 425
cassava processing firms, identified with the support of the National Board for Small Scale Industries (NBSSI)
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in the Eastern Region of Ghana. NBSSI played a prominent role in the intervention, namely a training on business
practices and goal setting.
The first scientific paper within the ‘Finance for Productivity Growth’ theme with particular relevance to Ghana
investigates the relationship between bank credit and trade credit in Ethiopia: whether usage of trade credit
decreases with access to bank credit, or whether the use of trade credit and bank credit are positively associated.
The findings suggest that bank finance and trade credit are substitutes in Ethiopia. In locations with lesser access
to formal bank finance, the use of trade credit is higher. The extension of trade credit by suppliers generates a
credible signal to banks with regard to the customers’ creditworthiness, which can make trade credit and bank
credit complementary on the individual firm-level. For informal retailers, bank credit acts as a counterpart to
trade credit in the sense that higher bank loan exposure is associated with greater access to trade credit. For
formal firms, however, the research reveals that having more bank loans is not a significant explanatory factor
of the use of trade credit. Financial inclusion has been a key topic in development policy debates in many
underdeveloped countries, but most policy initiatives address the direct effect of bank credit constraints. This
research stresses the importance of the role of informality in understanding the association between trade credit
and bank credit. Facilitating trade credit and bank credit could mutually strengthen each other, for instance, in
combined policy and development programmes integrating the two. Policies to expand financial inclusion by
increasing operational transparency might alleviate the agency problems of informal enterprises vis-à-vis
suppliers and enable them to obtain not only formal finance from banks but also informal finance in the form of
trade credit.
The second scientific paper within the ‘Finance for Productivity Growth’ theme investigates the determinants of
- and the barriers to - the adoption of a profitable financial technology by SMEs in Kenya. The research is
relevant for Ethiopia since the adoption of new technologies is comparable in the Ethiopian economic context.
Specifically, the study involves a field experiment focusing on the adoption of mobile-money as a payment
technology by restaurants and pharmacies in Nairobi. The field experiment studied the factors that foster
adoption of mobile money technologies by SMEs, and the barriers to its adoption. The research team offered a
randomly selected sample of restaurants and pharmacies the opportunity to sign up for mobile-money technology
which allows efficient mobile-money based transactions between a business and a customer. The study found
that over 60% of restaurant owners/managers signed up for the new technology, whereas adoption rates were
about 20% among pharmacies. The research suggests that policies and programmes to promote new technology
adoption could be best designed by addressing (situational) barriers, particularly bureaucratic barriers and lack
of information. A government programme providing free mobile technology, a relatively low-cost intervention,
would bring substantial commercial benefits for SMEs. Moreover, such an intervention would repay itself in
terms of increased taxation revenues. Providing free technology might also result in a ‘tipping point’ being
reached, when non-adopting SMEs switch to the mobile technology because it has become common practice.
This would also moderate the effect of the status quo bias.
The third scientific paper within the ‘Finance for Productivity Growth’ theme analysis interactions between
access to finance and employment creation for educated workers in Uganda. This country is comparable to
Ethiopia in terms such financial constraints and skilled labour issues. The research shows that the extent to which
micro and small businesses expand skilled employment, as their sales and profits increase, depends significantly
on access to external funding. Firms with positive performance and a bank loan will hire more trained and
experienced employees. Thus, growing and profitable small businesses create more jobs for trained and
experienced workers - which is interpreted as demand for skill - if they have access to external finance. Regarding
policy, the research findings underline the importance of well-developed financial systems for policies focusing
on job creation. Firms with greater financial flexibility are more likely to hire skilled labour once their
performance improves. For policy makers focusing on the challenge of creating formal and permanent jobs in a
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developing society, devising a complementary financial sector policy is equally important. The policy should go
beyond helping firms directly to strengthening efficient financial systems and credit programmes as well. Better
access to external funding can thus be an accelerator of human capital investment demand and growth. Policy
makers must also acknowledge that firms which are financially constrained save a greater proportion of their
additional profits (or pay other expenses associated with financial constraints) and therefore cannot invest further
in greater levels of employment.
Highlights of DFID/World Bank EIP-LIC survey Ghana
The data used for the discussion of the Ghana survey report in annex 2 and 3 comes from the Ghana 2013
Enterprise Survey (ES) of the World Bank, the Ghana 2013 Innovation Follow-up Survey (IFS) and the Ghana
Manufacturing Innovation Capability Survey (ICS). The survey report provides an in-depth firm level specific
description on sales and exports, supplies and imports, innovation, dynamic capabilities, trust, relationship with
customers and institutional actors. In addition, the country reports also attempt to answer the key DFID research
questions. Some of these questions include how public-private sector linkages influence the development of
innovations, the role of economic spillovers within clusters of firms in fostering economic growth and
innovation, and the significance of factors that firms perceive as critical barriers to the process of innovation and
diffusion of technology in Ghana among others. Keen interest was placed on sales and export, innovation
activities, trust, and dynamic capacity of the firms among others.
Following from the DFID questions discussed in annex 3, the findings with respect to the barriers to innovation
and technology diffusion show that lack of information technology remains the most critical barriers to both the
innovation process and technology diffusion among firms. With regards to firms linkages with external agents
and innovation, the results from Ghana show that firms collaborating with other firms have a higher likelihood
of engaging in internal R&D, formal training and procuring new equipment. The weak linkages that exist
between academia, research institutions and firms in Ghana is evident from our results. Also, financial support
and non-financial support from government agencies/departments does not have any discernible impact on the
innovation performance of firms in Ghana. Finally, female participation in the ownership of the firm, top
management and overall workforce do not play any critical role in the innovative performance of firms. This
clearly may be as a result of the very low participation rates of females in the top management of firms as well
as the dominance of male ownership of firms compared to females in Ghana.
Research and policy dissemination
Based on the research outcomes, EIP-LIC produced series of policy briefs on promoting innovation in
manufacturing SMEs in LICs, targeted at a broad audience of policy makers. Innovation policy makers are
usually understood to be government officials and staff within various ministries (S&T, industrialization, higher
education and economic planning). However, innovation policies and strategies are equally designed and
implemented by managers, business owners and branch organizations in the private sector. Likewise,
development agencies, donors and NGOs also consider and integrate (inclusive) innovation policies in their
programs and projects. All these actors mutually interact and could be enrolled in networks that promote and
enable innovation in manufacturing SMEs in LICs. It is envisaged that all these various stakeholders will make
use of the EIP-LIC policy output.
The research output is accessible at the project website www.tilburguniversity.edu/dfid-innovation-and-growth.
The output includes the academic reports and papers, the open access databases, a series of policy briefs and
videos illustrating some key research findings and policy messages.
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1 Introduction
The promotion of innovation in Low Income Countries (LICs) and emerging economies has recently appeared
on the agenda of policy-makers and international development agencies. Many agree that innovation is crucial
in these countries, because it is fundamental for growth in order to catch up with middle and high income
economies (Chaminade et al., 2010). Current research, theory development and policy formulation to promote
innovation, however, have mainly focused on innovation in the more advanced economies, whilst investigation
of these issues in low income countries to date has been limited.
The 5-year research project ‘Enabling Productivity and Innovation in Low Income Countries (EIP-LIC),’ funded
by the British Department for International Development (DFID) and commissioned to Tilburg University and
Radboud University, aims to fill research gaps on innovation in LICs from an economic perspective. EIP-LIC
aims to deliver robust high quality evidence from Africa and Asia on how to increase innovation and raise
productivity in manufacturing SMEs, through a coordinated set of thematic and country case studies providing
internationally comparable data. The research has been organized within two thematic areas: ‘Innovation
System’ and ‘Finance for Productivity Growth’. The countries of study include Kenya, Tanzania, South Africa,
Ghana, Ethiopia, Uganda, Vietnam, Indonesia, India and Bangladesh.
EIP-LIC focuses on manufacturing Small and Medium-sized Enterprises (SMEs) in LICs. Promoting innovation
in these enterprises has a particularly positive impact on development (Szirmai et al., 2011): SMEs are usually
operating on the boundary of the formal and informal sector and have low levels of productivity and
competitiveness. Compared to the agriculture and services sectors, manufacturing in LICs is typically
characterised by a limited share of the total GDP. Innovation within SMEs in manufacturing enables these
enterprises to raise productivity and grow, resulting in a better-balanced economic structure while generating
employment opportunities for poorer groups and contributing to poverty reduction. Moreover, promoting
innovation in domestic manufacturing is a way towards import substitution and increases the competitive
(export) position of firms on the world market.
The project collected primary data via enterprise surveys in collaboration with the World Bank, conducted
randomized control trials (RCTs) and carried out qualitative case studies in all countries of study leading to a
series of research papers and articles published in top journals and policy briefs. All written output is available
at the project website: www.tilburguniversity.edu/dfid-innovation-and-growth
This ‘Ghana Country Report’ presents a summary of the key findings of EIP-LIC research of Ghana and the
associated policy implications. Chapter 2 sets out the overall project approach of EIP-LIC. In chapter 3, the
report introduces the SME manufacturing sector by providing some key finding and context of the qualitative
study. Chapter 4 presents summaries of five research papers and policy implications developed within the
‘Innovation Systems’ theme. Chapter 5 present presents a brief description of the RCT implemented in Ghana
and summaries of three research papers and policy implications developed within the ‘Finance for Productivity
Growth’ theme. The policy implications in chapter 3, 4 and 5 are intended for government agencies, donors,
NGOs, branch organization or others to could take into consideration in their efforts to promote innovation in
manufacturing SMEs in Ghana. Annex 2 and 3 present the key survey findings as well as the data addressing the
research question articulated by DFID in the original project proposal.
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2 Project approach and methodology
In 2012, DFID identified the need for research in this field, and set the terms of reference for project proposals.
Tilburg University’s successful proposal focused on an overall goal to contribute to innovation and growth and
raise productivity in low income countries (LICs), leading to job creation and poverty reduction. The project
aims to strengthen evidence-based policy making on innovation and productivity issues in developing countries.
At the direct operational and output level, its framework comprises three areas of activity:
1. Research: open-access datasets and written research output (working papers, submitted articles and reports)
on productivity and innovation applicable to developing countries.
2. Policy and research uptake materials and dissemination.
3. Capacity development, to train and engage researchers in developing countries in policy relevant innovation
research. The project includes a capacity building component including PhD seminars on research methods
applied in the DFID project.
The approaches and methodologies involved in ‘Research’ and ‘Policy and Research Uptake’ are further
described in paragraphs 2.1 and 2.2 respectively. The capacity development component was of lesser importance
in the project and is not discussed in this report.
Project organisation
In terms of organisation and implementation, Tilburg University is the lead partner of the project, with Radboud
University Nijmegen (RUN) the main Dutch project partner. Within these universities, teams of researchers were
formed to prepare and manage the data collection and develop the academic output. In every country of study,
the research teams concluded cooperation agreements with academic partners for joint implementation of
fieldwork, data analysis, and paper and report writing. This cooperation also incorporated research uptake and
policy activities, involving interactions and stakeholder meetings with policy makers within government, donors,
NGOs and SME owners/managers. With regard to capacity development, the Dutch project partners organised
research methodology seminars for local academic staff and students, in collaboration with their partners in the
countries of study.
Partnerships were formed with the University of Nairobi (Kenya), University of Pretoria (South Africa),
University of Dar es Salaam (Tanzania), University of Ghana, National Economics University Hanoi (Vietnam),
University Indonesia, Ahmedabad University (India), Chittagong Independent University (Bangladesh), and
Makerere University (Uganda). A cooperation agreement was concluded with the World Bank for quantitative
data collection in the 10 countries of study. For randomised control trials within the ‘Finance for Productivity
Growth’ research theme, a collaborative agreement was concluded with The Abdul Latif Jameel Poverty Action
Lab (J-PAL) in Jakarta, Innovation for Poverty Action (IPA) in Accra and the National Board for Small Scale
Industries (NBSSI) in Ghana, amongst others.
2.1 Research
The first output area of EIP-LIC focuses on the development of high quality research output, data and academic
papers, examining ways to increase innovation in manufacturing SMEs in LICs. In particular, the research teams
addressed internal capabilities and external institutional factors, institutions and policies that support or hinder
the diffusion and adoption of innovation and finance raising productivity. The research implementation was
organised within two thematic areas: ‘Innovation Systems’ and ‘Finance for Productivity Growth’.
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The written output of the research is systematically organised in a repository accessible via the ‘Publications and
Reports’ menu on the project website. The repository is integrated into the overall Tilburg University repository,
established and maintained by its library. In addition, three types of open access datasets are produced: (i)
qualitative datasets, (ii) quantitative datasets under the ‘Innovation Systems’ theme, and (iii) randomised control
trial (RCT) quantitative datasets under the ‘Finance for Productivity Growth’ theme. These are also accessible
via the project website.
Research methodology challenges: combined qualitative – quantitative approach
Overall, the project involved a combined qualitative-quantitative research methodology, including qualitative
explorations in each country of study into policy and research issues, and quantitative data collected through
large scale surveys and RCTs. In the quantitative component, the project took an ‘economics’ perspective on
innovation, and involved econometric analysis of a set of variables concerning barriers at firm, regional and
national levels and their causalities with the innovative behaviour/capability of entrepreneurs and subsequently
innovation and productivity. This constitutes a reductionist and deductive approach in defining variables for
analysis, in which the impact of individual factors on innovation is assessed by applying quantitative econometric
methods. The quantitative analysis served as a basis for identifying relationships between internal capabilities,
external institutional factors and finance on the one hand and innovativeness and productivity growth on the
other.
Applying quantitative methods in development research brought some limitations and challenges. In EIP-LIC,
conceptual issues emerged, in terms of the definition and measurement of innovation and productivity in LICs.
These may seem straightforward variables at first glance, but their measurement can be more complicated in the
LIC context. Innovation may be manifested differently, not via high profile technological and radical
breakthroughs, usually measured by R&D expenditures or patents (OECD, 2005), but by more incremental
adoption and adaptation or new combinations of existing technologies (Szirmai et al., 2011). These forms of
innovation are equally important for raising the productivity and competitiveness of SMEs in LICs.
Moreover, innovation research and theory development in recent decades have typically involved empirical
material from advanced economies, such as the innovation systems literature of Lundvall (1992) and Freeman
(1987), where innovation takes place within a relatively stable institutional and Science, Technology and
Innovation (STI) policy context, ‘controlled’ and supported by established innovation system actors and
innovation policies. In LICs, however, the contemporary institutional realities and formal/informal dual
economic contexts are different and may involve other less visible or less commonly known factors and policies
around SMEs affecting their innovativeness and how innovation manifests itself.
Therefore, the theory and associated policies of how innovation evolves within an innovation system in the
institutional contexts in LICs may be different, which is increasingly acknowledged in recent innovation systems
literature (Lundvall, 2009; World Bank, 2010). For instance, entrepreneurs are innovating by Doing, Using and
Interacting (DUI) in fast-changing contexts, enabled by informal institutions and informal (social) learning.
Applying the research variables on innovation and productivity in LICs from existing literature and theory
(deduction) based on advanced economies, therefore, might not take all relevant variables into account. A more
precise identification of variables might be obtained by complementing the selection with a broader
understanding of contemporary realities and context on the ground in LICs.
Qualitative studies
In an effort to manage these challenges, EIP-LIC included a complementary qualitative research component,
involving an exploration and description of contemporary realities of innovation in manufacturing SMEs in LICs
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and emerging economies. This sought to inductively identify actual and relevant research and policy issues as
input for the EIP-LIC research themes as well as for additional explanatory evidence supporting research outputs.
This material could help researchers to validate, compare and complement existing theory in literature and
research design and hypothesis development with contemporary bottom-up realities on the ground, as perceived
by manufacturing SME owners and managers.
In operational terms, Tilburg University and partners conducted a series of case studies of manufacturing SMEs
in each of the 10 countries of study in the project. The holistic case study approach and method involved
interviews capturing original insights, views and perceptions of SME owners and managers. A similar report
format and comparable data was used for all countries of study in EIP-LIC, enabling cross-country comparison
to identify overall trends and patterns in innovation and productivity policy and research issues in manufacturing
SMEs in LICs.
In each of the 10 countries of study, 15-20 semi structured interviews were held with owners and managers of
SMEs in manufacturing, textiles, metal processing, food processing etc. The interviews discussed types of
innovation, the firm’s history, its innovation processes, internal capabilities, and the external business and
institutional context. The owners and managers also shared their stories outside this framework and advanced
issues that are relevant and interesting for current scientific work. 170 interviews in total were recorded,
transcribed and stored in a qualitative research database. The concluding qualitative reports of all 10 African and
Asian countries of study are downloadable from the project website. Chapter 3 provides some key insights from
the qualitative study in Ghana.
In line with DFID’s policy, the original intention was to publish the qualitative database as an open access
resource via the project website. However, in contrast to the numerical data, the qualitative data contained some
confidential information that owners and managers might not wish to have in the public domain. This ethical
consideration means that the interviews and transcripts are not freely available on open access, but may still be
used subject to a strict confidentiality agreement, in consultation with Tilburg University.
Innovation systems research
The ‘Innovation Systems’ theme focused on understanding innovation in the manufacturing sector in LICs, its
processes and critical factors hindering or stimulating its diffusion, including innovation policies and
governmental institutions. The research involves the quantitative analysis of a set of variables concerning
barriers at firm, regional and national levels and their causalities with the innovation capacity of firms. SMEs in
manufacturing find it harder to survive than large firms, which are typically more productive and more likely to
innovate in the long term, securing employment and economic growth. Regional conditions and infrastructures
differentially affect levels of innovation and technological and industrial development in developing countries.
The ‘Innovation Systems’ team obtained data in close cooperation with The World Bank, particularly focusing
on the World Bank Enterprise Survey (ES) and the Innovation Capabilities Survey (ICS). The ES is an ongoing
project covering over 155,000 firms in 148 countries, collecting data based on firms’ experiences and
enterprises’ perception of the business environment and investment climate. The whole population of the ES
data is the non-agricultural economy, comprising firms from the manufacturing, construction, services, transport,
storage, and communication sectors.
The ICS is a follow-up and complementary to the ES, comprising a randomly selected subset of respondents
from the ES sample. It focuses on the innovative activities and capabilities of manufacturing firms, and is a
collaboration between the World Bank, Tilburg University and Radboud University Nijmegen, funded by DFID
through EIP-LIC.
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The primary and secondary data enabled the ‘Innovation Systems’ researchers to produce a series of working
papers downloadable from the project website. The titles and full details of the papers are listed in Annex 1. The
data are available on open access for other researchers at the project website. All working papers have been
submitted to high quality journals, with some published and some still under review at the time of writing this
report. The primary and secondary data also enabled the team to address the original DFID research questions
underlying EIP-LIC, which are presented in chapters 4 and 5.
Finance for productivity growth
The ‘Finance for Productivity Growth’ theme focuses on understanding the effects of access to finance in
determining the productivity of SMEs and how constraints to investment finance influence growth. The team
identified interactions between firm-level characteristics, such as entrepreneurial traits, country-level factors
(such as industrial structure, institutional framework etc.) and access to finance.
Contrary to the research approach within the ‘Innovation Systems’ theme, the finance team conducted four
extensive RCTs in Vietnam, Ghana, Indonesia and Kenya. The interventions and associated baseline and endline
data collection were implemented with local partners including the Abdul Latif Jameel Poverty Action Lab (J-
PAL) in Jakarta and Innovation for Poverty Action (IPA) in Accra as well as the National Board for Small Scale
Industries (NBSSI) in Ghana. A series of academic papers has been developed from this, listed in Annex 1. The
dataset for each country, combining the listing, baseline and endline data, will become available on the project
website for future research and follow-up RCTS or endlines.
2.2 Policy and research uptake
In following up on the research of EIP-LIC, the dissemination and uptake of the research evidence is essential
to justify the value for money of the project. The underlying principle of the project’s engagement with potential
users is to ensure that the research insights in the published output are useful, accessible, actively disseminated
and communicated in a way that enables potential users to engage and make use of the research information in
their own work (research valorisation). There are four target groups of potential users of the EIP-LIC research
outcomes:
Local policy makers of governmental agencies, international donors and development agencies and NGOs,
who may gain new insights into promoting innovation and productivity growth in the manufacturing sector.
SMEs owners and SME branch organisations, who may learn from the management implications of the
research.
Researchers within the academic development research community, for whom the research outcomes serve
as a source of ideas and reference to develop their own research questions and methods.
The general public worldwide interested in development and poverty alleviation issues. The dissemination
will inform the public about DFID’s innovation and growth approach to alleviating poverty.
Policy and research uptake strategies
The project includes several strategies to interact with potential users. At the project start, the partners organised
a series of innovation policy stakeholder meetings in Kenya, Tanzania, South Africa, Vietnam, Ghana, Indonesia,
India and Uganda. Policy makers from government agencies, donors, NGOs and SME owners and managers
discussed the relevance of innovation and identified policy and research issues. These issues were then followed
up in the qualitative research component of the project.
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A further dissemination mechanism has been the production of a series of EIP-LIC policy briefs in which the
findings and implications for policy of the academic papers are discussed. Each policy brief is typically a 2-page
presentation of key findings, practical suggestions and implications, accessible via the project website.
The final collection of all research outputs is concluded in a series of country reports, which draw together all
the research findings for each country and are an important vehicle to disseminate the policy messages. The last
chapter of the report includes and elaborates on the country-specific policy recommendations.
Lastly, three short videos were produced, focusing on key research findings and policy messages, using high
quality footage filmed in Accra, Nairobi and Kampala. The videos present a policy theme illustrated by
interviews with several SME owners and managers, tell the entrepreneurs’ story, provide an idea of the realities
they face on the ground, and show the resilience of the SME owners. They provide policy makers with a sense
of the difficulties of the local context, and suggest policy solutions from the DFID research findings.
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15
3 Qualitative study in Ghana
3.1 Case study method
The objective of the qualitative study of EIP-LIC is to identify relevant policy and research issues concerning
innovation in manufacturing SMEs within contemporary realities in Ghana. Applying a case study approach is
particularly useful in this respect, since this method is an approach for inductively exploring and identifying
concepts, noticeable similarities, trends and patterns of socio-economic phenomena (Yin, 2003).
The case study research in Ghana involved a series of 17 interviews with managers and/or owners of
manufacturing SME in Nairobi and around. The qualitative data collection through interviews took place from
20 to 30 September 2015. The number of interviews may seem a limited number to justify research validity.
However, the approach usually involves in-depth rich and detailed descriptions and a multidimensional analysis
of the complexities and linkages of a few cases to gain an understanding of the (socio-economic) mechanisms
and processes of the case subject. In the case descriptions, innovation as an economic phenomenon is the case
‘subject’, whereas the unit of analysis is a manufacturing SME. The case description holistically explores the
type and basic features of innovation within the SME, and reviews the impact on productivity and
competitiveness over the past 2 to 5 years.
The data for the case descriptions are obtained via ‘semi-structured’ interviews with SME owners and managers.
Of particular interest is what innovation means in the manufacturing SMEs in their context, and the less known
favourable and unfavourable institutional conditions and barriers enabling or preventing it.
The selection criteria are defined in such a way that the selected cases represent the EIP-LIC target group:
manufacturing SMEs understood as a company with 10-100 employees. Moreover, the criteria assure a certain
homogeneity within the selected cases, which will enable comparison of cases while supporting a certain validity
of the identified trends or patterns. At the same time, allowing some heterogeneity, by including deviant cases,
provides more contrast, and thus enables the research team to better construct and highlight divisions in the
innovation process, linkages, system or mechanisms.
An essential element of the selection is the notion that types of SME innovation in LICs are not confined to
technological (radical) inventions resulting from particular R&D investments and efforts. Innovation in
manufacturing SMEs in LICs more often encompasses incremental adoption and adaptation or new combinations
of existing technologies, products, marketing, management or business practices. Moreover, innovation often
does not concern one type only. More often, an initial innovation enables and/or triggers other types of innovation
within a firm; a new technology allows the introduction of new products, for instance.
From the eight cases in the comprehensive qualitative report of Ghana, accessible via the project website, we
present three cases below to provide some insight on the daily realities of SMEs in manufacturing.
3.2 Selected cases
Case 1: Food processing – Palm oil, mixes, and palm cream (110 employees)
The company started in 1994 with the production of various palm oils and related products. It is located on the
northern side of Accra. The production processes, carried out in three large production halls, entail palm seed
cleaning, cooking and milling, followed by extracting oils, drying the powders and cooking the creams as final
products. A separate packaging and canning section is also a recent part of the company. To secure supply of the
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palm seeds used in production, the company has acquired 350 acres of land in different locations near Accra and
in the Eastern Region. It cultivates oil palm, cassava, maize and other crops. The company has 110 employees.
Initially, the company focused on the domestic market. However, the owner soon realised the export potential
of his products through his network of contacts. Moreover, distribution in the domestic market took a lot of effort
– “Maintaining contacts and managing the logistics in the three regions outside Accra were very time consuming
compared to the returns”. The owner had previous overseas experience in food retail during a 5-year stay in the
UK. This helped him a lot to use his network of good contacts among companies, importers and distributors, and
to understand export requirements.
The company started exporting their products in the year 2000. Today the company only deals with 4 principal
importers overseas: in Europe (Netherlands, Germany and Norway), the USA, Canada and Australia.
Innovation and internal capabilities
The owner sees a constant need to develop new palm oil and other related products. The demand is changing
continuously and technological developments make new products possible. In recent years, many new products
have been introduced as a result.
The current range includes banku mix, gari,
cereal mix, kokonte and hausa koko powder,
canned palm cream concentrate and canned
eggplants. In the future, the owner foresees
new products “because day in day out our
customers and importers ask if there is
anything new”.
In this dynamic business context, the owner
tries to keep well informed of trends, which
“helps me to be one step ahead of the
competition”. Most of the competing
companies are Ghanaian companies.
The owner has the advantage of exchanging new products within his international network of contacts and “by
so doing we are always ahead, and that has really worked for us”.
Product innovation goes hand in hand with new technologies in processing, labelling and packaging. The
establishment of the canning section in 2003 was one key technological innovation. Considering whether or not
to make this investment, the owner realised that there were only a few canning companies in Ghana, while the
demand was high. The new machines enabled the company to launch new products with a longer shelf life. The
owner believes that part of the success of the canned products was “the existing and well-established reputation
of the company brand in the market”.
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The growth strategy of the company
focuses on expanding the production
volume and range of products. This
involves innovation and technology
enabling the firm to process raw materials
into high quality food products.
The expansion of the range of products
will create more employment in the near
future – “These innovations are not about
saving on labour costs, but about the
ability to produce new products that the
customers want. Therefore we envisage
growth in terms of both machines and
personnel”.
The owner recognises the positive effect of employment creation, in particular for women – “We have about 30
women employed directly, and the impact on their children is very positive. They are able to give good meals to
the children and pay school fees, so the children get educated and learn about good hygiene: it is a multiple
effect”.
Internal capabilities
The owner considers himself a real entrepreneur. When he sees opportunities and other products overseas, he
says, “If others can do it, like producing some special type of product, I believe I can do it”. Once an opportunity
arises, the owner reviews the financial implications and consequences. At the same time, he is aware that one
can never be certain about a business plan, financial calculations and forecasts – “I am an entrepreneur, so I am
able to smell an opportunity; that good feeling helps in taking some of these decisions”.
When a new product is first proposed, by a customer for instance, the owner and the principal product developer
first brainstorm the overall idea and sort out the technical details of the process and the ingredients. Sometimes
company staff from the factory come forward with additional ideas. There has been input from employees in one
way or another in all the new products so far. The owner also travels 2 to 3 times a year abroad (The Netherlands,
Germany and Belgium) and researches new products in the various shops. He often goes just “to see products in
the shops and to see how our products match with other products on the market in terms of presentation and
pricing, and also to get customer feedback”. If the owner sees an interesting product, he brings it back. He feels
that every suggestion from a customer could be useful – “We put it on the shelf since we cannot implement it
immediately, even though it’s a good idea”.
The required minimum education level for staff is basic junior high school and the ability to read and write -
“We also have some university educated staff in product development and quality monitoring”. The company
undertakes quarterly training for their employees within the framework of a UNDP and UNIDO programme
‘Sustaining Competitive Enterprise’. Trainers from local institutions discuss production techniques and practices
for the highest possible quality and current product trends in the industry. They show videos and give
participating staff the opportunity to present their own innovation ideas.
Indeed, quality has been one of the important areas of attention to assure continued access to the export market.
Internally, the company has an agreed practice and culture of everyone being responsible for quality assurance
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– “You are on the machine working but you should open your eyes and observe”. Quality means, among other
things, that the product looks traditional and natural. This is what the average consumer wants to see in the end
product – “The palm oil they remember from their grandmother’s time”.
The company does not yet have any formalised bonus or reward system. However, some years back a staff
member came up with the idea for a new and successful product and “we gave him a bonus”.
External environment
Regarding the external business environment, the owner is facing several challenges. One major challenge
perceived by many manufacturing companies in Ghana, according to the owner, is the unreliable electricity
supply and frequent power cuts, which become more of a problem by the day. Without the generators purchased
half a year ago, the company would not be able to survive. The generators can power the whole plant, but this
brings with it a much higher cost “which could have been invested into the product or raw materials. In a day,
the generators use almost 1000 Ghana cedi (300USD) to keep the machines working and maintain production at
the required level.”
The owner feels that the location of the company is not very good. Previously, the company was located in the
outskirts of Accra, which is a more residential area. He tried to expand, but land acquisition was difficult and
not well regulated – “You acquire a plot of land and before you know it, someone else is claiming ownership”.
The current location provides space, but it is some distance from the central district, and road conditions are
poor. The owner is trying to lobby for investments in infrastructure by local government, “but no matter how
much you talk, you don’t get anywhere”.
In an effort to protect the brand name, the company has registered its name as a trademark, “despite the fact that
enforcement is weakly implemented by the government”. The owner feels that government officials and
politicians are usually looking at short-term policies and programmes that will bring them power and benefits
rather really helping the companies.
The owner is not very positive about the banking sector in Ghana. The interest rate for credit is about 35% per
year, “which is simply too high for any kind of business”. The company has credit because otherwise it was
impossible to grow – “Certainly for at least a number of years you cannot do without credit. You definitely need
credit to be able to meet all the industry standards”. The credit issue prevents the owner from doing things that
he would like to do. Repayment is an ever-present challenge.
The company monitors the international firms in Ghana: their new and existing products, marketing, types of
packaging, machines used etc. The company sees Nestlé and Unilever as its main role models. The company
recently collaborated with the Food Research Institute in a yam preservation project. However, the cooperation
was established through an informal contact, which ended when the person left the institute. The owner has just
signed an MoU with the Food and Nutrition Department of a Polytechnic College. The students are working on
developing food products and “it’s one of the things we are trying to do. They are studying food products and
they have quite a number each year, so we can get many more ideas for product development”.
Case 2: Wood processing – Functional design furniture (75 employees)
The company, established some 15 years ago, produces hand-crafted wooden functional design furniture,
wooden accessories and handicrafts for the export market, mainly the US. The furniture includes traditional
stools, tables, benches, side tables, consoles/wall tables and television stands. Another line of products is
furniture accessories, such as vases, mirrors, bowls and wall hangings; and the handicrafts line includes
traditional masks, dolls and figures. Their website indicates that the products are handcrafted from eco-friendly
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wood and recycled local materials, reflecting nature’s provisions and the spirit of the local artisan. There are 75
people working in the company (5 office staff and 70 artisans) at present. The number of employees fluctuates
over time, depending on the volume of orders.
The lady who started the business is not herself an artisan. She worked in the ‘90s as a secretary for a Ghanaian
organisation ‘Aid to Artisans Ghana’ (ATAG) in Accra, an NGO which supported handicraft producers and
promoted export. In 2000, she had to resign from her job and began processing and exporting wood products
herself, taking advantage of her export experience, contacts and international network channels to the US.
Initially, she started producing and exporting decorative traditional African art such as masks and figures. For
the actual production, the owner engaged artisans nearby who did the carving in their homes. This way of
outsourcing brought occasional coordination and supervision problems.
Shortly thereafter, the owner realised that functional design products was a promising opportunity. In 2003, she
started converting some of the items into functional things and ascent furniture. Her husband joined the business
at this time, because it had grown substantially and she could no longer handle it alone. They set up a workshop
next to their house to provide working space for the local artisans. They brought in machines (a band saw, a
mechanical planer and a wood turning machine) to do the work faster, although most of the work is done
manually. Since then, the company has mainly produced functional design furniture for the US market, in
particular for large American chain stores such as Marshall’s and TJ Maxx. Sometimes the company exports
small quantities to Europe.
The owners’ daughter has also been involved in the business over the past year, with a view to taking over the
business later on. The owners are happy “because several companies in Ghana folded due to the problem of
succession”. Her daughter brought in some new ideas for advertising, such as the use of the Internet and social
media as a marketing tool. As a result, new customers contact them after having seen the products online and
ask for the catalogue and price list. Social media is now also providing answers for technical questions – “The
company now has much greater exposure to a much wider potential customer base”.
They acquired another much more spacious plot of land nearby to establish a new workshop because the current
premises are in a residential area and are becoming too small. The new premises will enable them to expand
further and work with more artisans and expand production. However, there is a problem because they are
waiting for the government to set up the electricity infrastructure, which is taking a very long time – “If we want
to fast-track to get the electricity connected, then we have to connect it ourselves. We applied and received a
quotation of about sixteen thousand USD. We cannot afford that”. Due to the lack of electricity, they prefer to
keep the workshop at their house for the time being.
The owners are happy with the business and they see that they have a social role to play in terms of creating
employment. In Ghana, many entrepreneurs feel a kind of a social responsibility, as they say, “not everything in
the business is about profit-making, but also about playing a role in community”. They take people off the street
and give them skills training and employment and the means to earn a living.
Internal capabilities
The company has 3 ‘master craftsmen’ and 2 ‘master craftswomen’ who coordinate and monitor the work of the
artisans in the workshop in the carving, carpentering, lathe operating, sanding, painting and polishing sections
(the master craftsman and craftswoman are titles that the company came up with; an official skill grading system
does not exist in the industry). The master craftsmen and -women are also responsible for training the new junior
artisans, also called apprentices. The training takes place on-the-job during the production process of a received
order. By the time an order is completed, the junior/apprentice has learned enough of the steps and knows how
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to work on his or her own. The company pays the apprentices during the training period. The presence of the
apprentices helps to increase the production managed by the master craftsmen and -women, which increases
their earnings. This system is thus beneficial for the master craftsmen and -women, the apprentices and the
company.
The company is always in need of skilled craftsmen and artisans to meet large orders. Most of the junior artisans
have little experience. They know several skilled artisans, for instance at the Madina market, the Arts centre (a
craft trading center in Accra) and in Kumasi, whom they hire from time to time. In addition, employees
recommend other workers. The owners also have a notice board at the gate to recruit new artisans.
Regarding input for their products and the supply of raw
material, they use off-cuts and dead-wood of a specie
called Cedrela: waste from the forest plantations outside
Accra. The plantation farmers cut down their trees to create
space to plant their crops alongside the plantation
seedlings. The company obtained a permit to go into the
forest and select the off-cuts and dead wood of the felled
timber. The company’s representative then picks these off-
cuts and dead wood and cuts it into pieces of about 61 and
76 cm long. The women in the community are paid to carry
these pieces from the forest to the road side. From there, it
is transported to the workshop in Accra, which is a 4 hours’
drive.
With regard to the development of their internal capabilities, the strategy and vision of the owners is to beat their
competitors on quality and the uniqueness of their products. There are quite a number of furniture businesses in
Ghana. They observe that the quality of their products is better because of their superior skills, internal
organisation and technical equipment – “Our pieces are well-dried and we use gas ovens for the drying. Our
designs are also unique. That makes our quality and design quite different from what is available in town”.
Several other companies in Ghana also export, but the owners set their own standards. They select good quality
wood and pay accordingly. They pay the artisans properly so that they can ask them to deliver a good job in
return.
The artisans are not on a fixed salary contract, they get paid piecework. There is an extra reward system for
artisans who work well. The owners take care of their workers – “When anyone gets sick, we take care of their
medical bills”. They also registered the artisans on their initial National Health Insurance scheme. During
holidays and at the end of the year, the owners give presents to the artisans. The women get cloth and the men
get shirts, in addition to the rice and chicken to take home for celebration.
Over the years, there have been gradual changes in the functional designs. The owners get most of the ideas from
their customers – “The introduction of the functional designs in the first place was prompted by a request from
a buyer for newer things”. The artisans provide some help and the company also collaborates with some external
designers. The artisan, usually the master craftsman, comes up with the product. If the buyer selects it, then he
gets a bonus on top of the income he earns. The owners also do sketches for the artisans to develop into samples.
External business and institutional environment
The owners describe the business environment as “very difficult” in Ghana. Their commercial outlets for sales,
for instance, are not very stable. They suffer from the fact that customers come and go, on an irregular basis.
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Some buyers only place large orders once yearly, like the US buyers. This does not provide sales continuity over
the year. The owners have worked with various trade facilitators for exports. The West Africa Trade Hub
(WATH), set up by USAID, was one important institution, but has stopped dealing in handicrafts. The owners
maintain contact with Aid to Artisans (ATA) Ghana, which informs them about potential buyers. They then meet
and show their products to these buyers. The couple also frequently travel to trade fairs in the US and the
Ambiente in Frankfurt, Germany. At these fairs, they try to get contracts for orders, but more importantly, they
interact with the end users, which help them to get a feel of market trends and develop ideas for new products.
Apart from the export market, the owners are
becoming aware that the local market provides
an opportunity not to be missed. A growing
middle class, with increasing purchasing
power, is looking at more luxurious furniture
for their homes. These people are prepared to
pay higher prices for high quality goods.
Moreover, there are a lot of new hotels in
Accra. The owners realised that “our domestic
market is huge”. Their daughter is taking care
of sales on the local market for the time being.
Regarding the external financial context, they
base their long term investments on their own
savings and profits.
Sometimes they need short-term credit to complete export orders. In these cases the owners go to the bank,
although it is very expensive. The credit rate is now 32% per year, but adding stamp duties and other charges, it
amounts to about 40% per year. The paperwork is also a significant hurdle. Three years ago, they had a problem
with export financing, and it took about three months to get a short-term loan – “We are constantly challenged
to stay in business in the midst of these problems”. Recently, they joined a revolving fund system, which helped
them to complete an export order – saving 2 to 3 months of application time.
There is no clear support from the government or clear government policy or programmes in their line of
business. “It is as though the industry is just a sub-sector in the economy”. They suppose that they are under the
Ministry of Trade, but there is no well-defined policy to attract buyers of handicrafts - “it appears that the
potentials of the industry have not been recognised to attract the investment it requires”. Moreover, taxes are
heavy in Ghana – “If the government wants to tax us, that is fine, but not to the extent that we end up collapsing”.
The owners feel that the government could help starting and growing businesses by providing them with some
tax exemptions and other incentives as done for foreign investors and free zone companies – “In this prevailing
environment, lots of domestic companies are not exporting much, not earning enough foreign exchange and thus
not making money. That is why the industry in Ghana is not stable and a lot of start-up exporters have gone out
of business”. The one organisation that could support them is the government’s Ghana Export Promotion
Authority (GEPA), which is supposed to facilitate export activities. However, their programmes do not match
the expectations of the handicraft exporters. “Once a while they invite us for events and we participate to keep
the relationship going, but it is not something we depend on. If there is a new problem regarding export
regulations, we do not know whom to talk to”. Regarding infrastructure, the situation is not good enough,
especially in the hinterland. The roads are in a bad condition and the company suffers a lot from electricity cuts.
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They have a stand-by generator, “but using it all the time is not a viable option – this is too expensive”. Regarding
the electricity connection for the new premises, they feel that the process is too slow.
The owners have a good network among the various institutions in Ghana. They have established a relationship
with the Forestry Research Institute of Ghana (FORIG) of Council of Scientific and Industrial Research (CSIR).
They are currently concluding a MoU to establish a working relationship for mutual benefit. This will enable the
company’s facilities to be used for research purposes while the company is also accorded some access to such
research findings, especially in identifying appropriate new species and processing techniques. The company
can make use of the research findings and also gain access to other research plantations. The owners are
interested in new species of wood because some other species they use get depleted – “So it is a win-win
situation; the Forestry Research Institution can do research and we gain knowledge”.
They also participate in the Danish cultural programme coordinated from South Africa. Through this support,
the company became a member of Design Network Africa (DNA). This is a network of about 20 African
designers. In this programme, DNA invites designers who come in occasionally to work with the company on
new designs and technical and design solutions – “The main essence is networking to see what each of us is
doing and what we can share, and because of that we have a good relationship with designers in Mali, Burkina
Faso and South Africa”.
They have a relationship with the Kwame Nkrumah University of Science and Technology (KNUST) -
Department of Rural Arts, which places final year students for assignments and internships. The next step is to
expand relationships with other training and research institutions. They plan to partner with the national
vocational training organisation – “We want to make use of the young people, those who are into carpentering
and wood turning so that we can work with them”. One of the activities is participation in the youth employment
programme with the district assemblies. Under this programme, the company recruits young people (for a modest
wage) and trains them at the same time. The owners consider this as part of their social responsibility.
Case 3: Creative industry – Game technology applications (6 employees)
This technology company started in 2009 with the development of game apps for mobile phones and computer
software. The company was founded by a Ghanaian and a Kenyan, two young men who met each other online
in 2006 after a debate as to who was the first to develop video games in Africa. The company received initial
funding from a business incubator programme in Accra - Meltwater Entrepreneurial School of Technology
(MEST), involving seed funding of 100,000 US$, office space and hands-on management support. MEST further
engaged experienced entrepreneurs to provide mentorship for software start-ups – “The great advantage is the
immediate network around. You can walk across the hallway and talk to another company and they can introduce
you to an advisor somewhere”.
At present, the Kenyan partner runs the technical team in Nairobi, whereas in Ghana the team is involved in
product development and creative design. Consequently, ideas and technical implementation go back and forth.
There are 6 full-time employees and now and then a few university interns. Often the company employs more
temporary staff, up to 15 people, to complete complex or challenging orders.
Innovation and internal capabilities
The company has two lines of activities. The first concerns the development of ‘traditional’ game software and
apps for corporate clients and NGOs. This commercial activity has been essential for the company’s survival
since 2009. Among others, the company developed a maternal health education game for nursing education for
the Oxford University and the Kemri Trust Foundation in Kenya. Another game was developed for a Kenyan
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NGO with the aim of enabling voters to assess candidates in an election. Their client list includes Microsoft,
Intel and Vodafone. They also developed internal games for companies to train their employees.
The company sees a strong future in developing games for education and training purposes. One idea is to
develop a product which integrates teaching in mathematics, science, arts and engineering because “in game
software development, the creative aspect is very necessary, so we preach creativeness in computing and
mathematics education”. The owner is also considering educational software for government institutions to help
reading in schools. He is trying to get banks as clients for staff training games, and has already developed some
financial games to train people how to save and invest.
The second line of activities is under development, but should eventually become the company’s core business.
This concerns the creation of a series of products, including game apps, software and comics within a conceptual
story framework called ‘Africa’s Legends’. The framework involves a group of super heroes, historical figures
from different African regions. For example Ananse (Ghana), Shaka Zulu (South Africa), Pharaoh (Egypt) and
Masaai (Kenya/Tanzania). The underlying idea is to use African identity as the basic characters with strong
storytelling in the games and comics. These “super heroes” fight the contemporary problems in Africa, such as
hunger, political instability, terrorism and Somalian pirates. The underlying idea of the owners is to tell African
history in a 21st century format, through their products – “Our specific strength is building games with African
characters and telling African stories better. That is our unique strength in game development”. They realised
that Africa has “too many cool stories that are told in very boring forms”. The felt that Africans have not been
able to communicate their history in modern forms – “In the creative industry, fantasy is what creates hope”.
The owners envisage that Africa’s Legends will create that – “This sparks children’s imagination and it will
encourage them to read history”.
The owners found that, in the Western world, the games industry is bigger than the movie and the music industry
put together, and “Africa is not contributing anything to that”. The owners believe that Africa has a major
opportunity in developing localised versions of games and software programmes. The owners are ambitious –
“We are not only creating a company but creating a whole new industry in Africa”.
The company launched its first products within
the Africa’s Legends framework last year. They
encountered the problem that there are already
many good games and products on the market,
usually developed in Western countries. To
position themselves, the company launched free
products such as digital comics, games,
wallpapers and videos for Android, Windows
Phone and Java. The free products serve as a test
of people’s reactions. Once people to get used to
the story, the company will start to charge money
for new Africa’s Legends products. In fact, the
owners plan to develop a large Africa’s Legends
flagship game to play on Xbox or on a PC with
the idea to compete in the global market. This
plan involves a serious investment of around 1
million US$.
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Investment money is not the only challenge; attracting knowledgeable and skilled staff is also a difficulty. The
development of games is complex and expensive – “Without the right technical and creative skills in the team,
it is very difficult to make a game that can compete internationally”. It is key to recruit, organise and manage a
multidisciplinary team with the required skills and one that collaborates intensively. This is a real challenge;
forming a team with a story writer with English language knowledge, an artist with creative skills, a programmer
with a good understanding of computer science. To develop the flagship Africa’s Legends game, the owners
envisage involving story writers from the different African regions, because they know their characters better.
However, it is difficult to recruit staff with the right skills in Ghana. Game development is not taught in the
universities; it is a new avenue – “Everything that we know and do is self-taught”. The owner started
programming in junior high school. By then, he says he was addicted to comics and computers - “I was a very
troublesome kid, always hacking”. The staff recruitment approach involves bringing in interns, final year
university students, who then develop into staff members.
External business and institutional environment
The company has few competitors, but is not the only game development company in Africa. In Nigeria, there
are now quite a number of start-ups. The owner considers the business environment, in terms of market and
opportunities, to be very promising. There is sufficient space for competitors in the African market and he
welcomes competition. This will help him to validate the products on the market – “An investor won’t invest in
us if we are the only one making games. So we encourage others to also develop games”.
With respect to launching the ambitious Africa’s Legends game, the owner is looking for serious investors to
secure the 1 million $. Credit from a bank is not an option. The interest rates are too high and application
procedures are too rigid and complex. Currently, banks give very few loans out to software companies. This is
one aspect that makes the business environment difficult. The Ghanaian owner has other funding options for
example he was nominated for the Africa Entrepreneurship Awards 2015 sponsored by the BMCE Bank of
Africa in Morocco and hopes to win – “It’s a million dollar award and I hope to win”. If he wins this award, he
will invest the money in the company.
The Ghanaian owner is bothered by the bureaucracy, rules and regulations, while there are no support policies
or programmes. The government is not supportive, “but that is okay - we just operate without the government”.
The owner regrets that there is nobody within the government who sees the potential of the initiative – “They
don’t have any idea about the industry. Sometimes it hurts because there is no policy for supporting our industry”
Probably research projects, like the DFID project, can help to raise our profile with the government”. The owner
feels that government institutions and tax departments always take and never give. Government policies and
regulations for product protection are not transparent.
It is difficult to arrange and safeguard intellectual property. The owner is in the process of registering and
arranging the copyright of the Africa’s Legends characters, but securing worldwide rights is an expensive
process. Once you start a business, full taxes are immediately payable – “At times we considered leaving and
setting up our company in Mauritius”. However, the owner is patriotic and believes that his company will
generate good revenue one day. This will contribute to the Ghanaian economy so “we just try to stick to our
passion”. Another original thought is that under Africa’s Legends, the company could develop a satirical comic
criticising incompetent policies, lack of enforcement and greedy presidents or politicians – “That is the great
thing about comics. Africa has too many problems and we can solve them by telling them in a fantasy world,
which can then affect the reality”.
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There is also a cultural issue with games in Ghana. The country is not games-oriented and the owner has to
convince clients that games are “good and useful”, for training for instance, before he can sell them – “Outside
Ghana, they know what games can do and they just get the game they want. Here, you always have to fight two
layers; first fight the culture and then sell the product. That was quite difficult in the beginning”.
External assistance was limited to the British Council in Accra. The company participated in the Young Creative
Entrepreneurs’ Award. The company also benefited from the support of the MEST incubator programme,
outlined above. The company also attracted a lot of media interest because of their game development in Africa.
For instance, in 2012 the company made a game for iPhone called i-Warrior. The BBC immediately covered the
story “because it was an innovative thing from the region”. The US embassy organises programmes and
recommends the company to other people who are interested in the business.
3.3 Research and policy issues
Innovation definition
The qualitative research shows that the owners and managers in all interviewed companies, in different ways,
introduced new products, processes and technology in order to improve and expand their business operations. In
advanced economies’ innovation terms, in which R&D expenditures and number of patents are typically
measured (OECD, 2005), these cases probably would not be assessed as innovation. Such an assessment would
in any case have been impossible because the owners do not systematically record R&D expenditures and have
not registered patents.
Taking a broader perspective on innovation, viewing it in terms of incremental adoption and adaptation or of
new combinations of existing technologies (Szirmai et al., 2011), it is evident that the new elements introduced
in the interviewed companies resulted in better and more business operations, creating value. As described in
emerging innovation theories on LICs, much innovation depends on an aggregation of small insights and
advances through ‘learning by doing’ rather than on major technological inventions (Carayannis et al., 2003).
Despite increasing interest in the literature, the exact definition of innovation in LICs remains a problem
(Çapoğlu, 2009). How should researchers distinguish innovation in LICs from other activities? The broadest
possible definition of innovation would be everything new that the company does to survive and stay ahead of
its competitors. Innovation could be considered as a ‘means’ towards the ultimate objective of raising
productivity and increasing competitiveness. A cross analysis of definitions in innovation theory from recent
decades (Voeten et al., 2011) shows that innovation is repeatedly typified by three key elements: newness,
process and value creation (see box 1).
Kaplinsky and Morris (2001) identified five types of innovation: (i) process innovation aiming at improving the
efficiency of transforming inputs into outputs; (ii) product innovation leading to better quality, lower price and/or
more differentiated products; (iii) business practice innovation implying new ways to organise business and
attract new clients; (iv) functional innovations – assuming responsibility for new activities in the value chain,
such as design, marketing and logistics; and (v) inter-chain innovations moving to new and profitable chains. In
many innovation definition and measurement documents, such as the OECD Oslo Manual (OECD, 2005), an
explicit distinction between product, process and other forms of innovation is made. However, distinguishing
the types of innovation in the Ghanaian cases was not such a clear and simple process. It is more common to see
a combination of several types of innovation, where one type triggers another, such as the introduction of a new
process (technology) that enables the launch of new products. The Ghanaian cases show a combination of new
technology, new processes, new products and new clients within the companies.
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Box 1: Innovation newness, process and value creation (Voeten et al., 2011).
Addressing the first element, Kotabe and Swan (1995) argue that innovation can be investigated in terms of both newness
to the company and newness to the market or world.
Regarding the second element, the innovation process, all owners and managers themselves initiated, managed and owned
the innovation process within the unit of analysis, their company. They developed the idea, sometimes inspired by others,
started to run small experiments and trials and eventually implemented the new product or production technique on a
commercial scale. As is often the case in incremental innovation in developing countries, this is not a planned and
formalised process involving a pre-defined innovation strategy and an R&D department.
The third element, value creation of innovation, is evidenced either through lower input costs or higher sales revenues
(Porter, 1985). Higher profit through new premium products of better quality, or appealing to a certain fashion increases
competitiveness.
Innovation
Although the new products and new processes in the interviewed Ghanaian companies were not radical and not
‘new to the world’, they were new for the companies, as units of analysis. Interestingly, most company owners
and managers did not perceive their incremental adoption, adaptation and new combinations of existing
technologies to be innovation. They associated innovation with a radical technological invention or
breakthrough. All the entrepreneurs have great confidence in the market, which motivates them, even in the
harsh business and institutional environment in Ghana. Starting small, step-by-step they have been learning about
the market potential of their product. In fact, all the innovations observed in the cases are the product of
experiential learning and a process of doing, using and interacting (DUI), as earlier described by Lundvall et al.
(2009).
Most of the innovations concern the introduction of new products processed from primary (agricultural) products
- palm oil, wood, yam and chillies - available in Ghana. The workforce mostly comprises unskilled labourers.
The production is envisaged for the domestic and export market. With regard to product innovation type, Ghana
fits in the classification of a factor-driven economy.
Within the theory of stages of development (Porter et al., 2002), in the factor-driven economy, countries compete
based on their factor endowments, primarily unskilled labour and natural resources. Companies process and sell
basic products or commodities, with their low productivity reflected in low wages. Most of the innovation
concerns the development of new products enabling access to new (export) markets. Being in pursuit of high-
quality products contrasts with the general idea in Ghana that local products are of poor quality.
As a country becomes more competitive, productivity will increase and wages will rise with the advancing
development. Countries will then move into the efficiency-driven stage. This is not yet the case in Ghana. There
was no innovation aimed at increasing productivity by saving on input or labour costs. In the efficiency-driven
stage, companies begin to develop more efficient production processes and increase product quality even more
because wages have risen and they cannot increase prices. Interestingly, the introduction of new technologies in
the Ghanaian cases was aimed at enabling production of higher quality products and access to new (international)
markets. Most interviewed SMEs expected to hire more staff in this process of expansion. Most of the
entrepreneurs demonstrated social awareness and see their importance in the community.
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Finally, as countries move into the innovation-driven stage, wages will have risen by so much that companies
are only able to sustain these higher wages and the associated standard of living if their businesses are able to
compete with new and unique products. This is definitely not the case in Ghana.
In the cases, ideas for new products are mainly acquired from the market. Customers come with requests and
suggestions, or the owners talk with clients. This is demand-driven innovation. However, this was not the case
for the software developer, which previously developed software meeting a set of requirements and
specifications to order. The company now does its own design with the Africa’s Legends products. This is an
example of supplier-driven innovation.
Internal capabilities
In all cases, it was the owner who initiated, coordinated and managed the innovation process, including
preparations for the innovation, the technical details, and the product launch. None of the companies has an R&D
department within the firm. In all cases, the owner took up ideas from various sources. Most of the owners who
are engaged in export gained international exposure by working or studying abroad. Contacts with clients and
competitors at trade fairs in Ghana and overseas, as well as internet research, provided good sources of
information on new technology and products.
Sometimes the employees provide additional ideas, to a greater or lesser extent. Several owners, however, stress
the limited creativity of their workers and refer to a bad attitude and lack of responsibility. Most owners and
managers do train the employees on-the-job, but this does not involve the development of creativity. In fact, it
was a frequent occurrence that after training, employees would leave the company for another job. Although
there is a lot of unemployment and hidden employment in Ghana (Baah–Boateng, 2013), recruiting skilled
labourers is a problem for all companies. Graduate employees only possess theoretical knowledge and have few
practical skills.
Several owners pay their employees based on output, not a fixed salary. In addition, the workers get rewards and
bonuses in most companies, although the actual implementation is not always well managed. One owner had a
particular reward system to improve worker attendance: those who came to work from Monday to Saturday were
also paid for their free Sunday. If they were absent one day, they were not paid for the Sunday.
Typically the companies possess machinery that is old and outdated, often purchased second-hand from Europe
or China. The owners often have plenty of ideas and are well informed about the technological possibilities
though the internet or friends or via a member of an association. However, they lack funds for the investment
(see below).
Business system
All SME owners indicate that the business environment in Ghana is challenging. A key problem is the
competition with imports, particularly from China. The policy framework is in conflict with the interests of the
local SMEs: there are certain tax exemptions for imported finished products from China, but Ghanaian SMEs
importing raw materials or packaged materials from abroad have to pay full import taxes for these materials,
resulting in a decreased competitiveness of Ghanaian firms.
There is very little spill-over of technology as a result of cooperation between firms, subcontracting or other
forms of collaboration within value chains. One company even acknowledges the downside of unreliable
suppliers and avoids cooperation by organising all the steps of the production process within the company.
External business environment: formal and informal institutions
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All SME owners have more or less the same negative
perception of government policies, legal regulations and
systems. The government apparently promises a lot but
actually implements little. Many owners do not really
believe in enforcement of trade mark protection,
although they have registered one. They do not feel
supported at all by the government, and feel that they
have to survive on their own. The infrastructure is not
well managed. All the entrepreneurs complain about
constant electricity cuts. Some were able to install
generators, but this is not an option for some, given the
high costs of petrol.
The banking system is not an attractive source of finance
for SMEs, and very few have secured credit. They all
complain about high interest rates and complex
paperwork. Instead, most SME entrepreneurs are funded
from their own savings, family members, friends, or
informal institutions, and invest step by step as a result
of large orders.
Many interviewees said that they did not have access to credit. One entrepreneur did not want to seek credit
because of his belief – “from a Catholic perspective, you should not have debts”. Interaction with technology
institutions is virtually non-existent. Many SMEs indicated that they would like to cooperate with universities
to do research at their premises, while sharing the research insights obtained.
Policy issues – insights to consider by policy makers
The cases confirm the picture that SMEs, the ‘missing middle’, are weak in Africa because of the very difficult
business conditions, which include time-consuming official procedures, poor infrastructure, inefficient legal
systems, inadequate financial systems and unattractive tax regimes. Many firms stay micro and informal and use
simple technology that does not require great use of the formal institutional context. Their smallness also protects
them from legal proceedings, so they can be more flexible in uncertain business conditions. At the other end,
large firms have the means to overcome legal and financial obstacles, since they have more negotiating power
and often good contacts to help them get preferential treatment. They depend less on the local economy because
they have access to foreign finance, technology and markets, especially if they are subsidiaries of bigger
companies. They can also more easily make up for inadequate public services2.
As argued in the introduction of this report, it is desirable to develop innovation within manufacturing SMEs.
Some believe that technological innovation is decisive for SME development and catch-up. Technological
innovation has, however, been traditionally concentrated in a few developed countries, given the costs and risks
involved in stimulating technological innovation. Foreign sources of technology account for a large part of
productivity growth in most countries, as witnessed in the Ghanaian cases. Therefore the development process
in low income countries (LICs) could be supported by tapping existing knowledge and know-how.
2 http://www.evancarmichael.com/African-Accounts/1693/SMEs-in-Africa-the-Missing-Middle.html
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It seems that the notion of growth as ‘manna from heaven’ as reflected in convergence theory, see the exogenous
growth model of Solow and Swan (1956), might work because of the free and widespread access to knowledge
and technologies via the internet. The institutional context, providing trust, predictability, stability and access to
finance is more of a problem in preventing ‘convergence’ from happening.
So then how can the innovative capacity of SMEs in developing countries be increased? According to the World
Bank, an efficient innovation policy by governments will address the overall innovation climate, which goes far
beyond traditional science and technology policy. At the same time, government action can usefully focus on a
few generic functions to help SMEs to grow. It can facilitate the articulation and implementation of innovative
initiatives, since innovators need basic technical, financial, and other support.
The government can reduce obstacles to innovation in competition and in regulatory and legal frameworks.
Government-sponsored research and development structures can respond to the needs and demands of
surrounding communities. And finally, the educational system can help form a receptive and creative population.
Regarding actual innovation policy development, there has been a considerable amount of work in developing
countries, such as the World Bank (2010) report ‘Innovation Policy: A Guide for Developing Countries’.
The lack of relevant education is a problem for the companies interviewed, who feel there are insufficient skilled
workers and operators to work with modern machines. SME owners and managers complain that university and
college graduates do not have the required technical and craftsman’s skills, exposure to modern technologies, or
an entrepreneurial and creative attitude. One entrepreneur specifically suggested creating establishments that
train workers in the use of latest technology. The enterprises could employ these skilled workers and give the
owners the confidence to purchase new equipment and machinery.
As mentioned earlier, several ministries and agencies are engaged in efforts to develop and promote innovation
policy, usually labelled as Science, Technology and Innovation (STI) policy. Despite considerable effort in
developing strategies and plans, actual implementation is challenging, due to the limited availability of public
budgets and knowledgeable staff. The stories and experiences of the owners and managers raise the issue of
whether an STI approach would match the realities of the manufacturing SMEs on the ground. Most of the
required technology was already available, but elsewhere in the world. Without too much difficulty, the owners
and managers found the technology themselves by drawing on various sources of information (the internet,
informal business contacts and trade fairs). Moreover, the companies themselves refined and adapted the existing
technology once acquired. So, although setting up technology development projects and programmes may help
SMEs, it is not perceived as a barrier to innovation by the owners and managers.
Several SME owners and managers suggested that creating a stable and predictable institutional context would
be an efficient and effective way to promote innovation in Ghana. All kinds of innovation policies and
programmes could be developed, but the results of such policies will be undermined by the weak and unreliable
wider formal institutional context.
Another policy idea emerging from the DFID project is that several owners and managers suggested not to focus
on governmental policy makers only, but on direct advice to SMEs on how to improve their business. One idea
is to develop non-governmental business information exchange networks and platforms, establishing contact
between entrepreneurs in Africa and beyond, to facilitate discussion and deals within the various sectors. SME
owners suggested that the DFID project could establish a network of all SME owners and managers contacted
during the implementation of EIP-LIC and create a website for them to stay in touch with each other.
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4 Innovation systems
The ‘Innovation System’ team produced five scientific papers with data from Ghana. The research findings of
each paper are discussed and policy implications are reviewed in the paragraphs below. The associated policy
briefs are listed in the project website.
4.1 Innovation, downsizing and labour flexibility
The first scientific paper within the ‘Innovation Systems’ theme, involving data from Ghana amongst others,
focuses innovation and labour flexibility. Firms increasingly engage in downsizing their labour force with a
view to increase their efficiency and to cut costs. However, recent research in developed countries found that
downsizing firms do not always enjoy the desired increase but rather frequently experience a decrease in
organizational performance, efficiency and profitability: Downsizing is frequently associated with increased
feelings of job insecurity among the remaining employees, resulting in lower levels of motivation and
commitment and ultimately a decrease in innovative behaviours and performance. Given the frequent use of
downsizing, the importance of innovation for firm competitiveness and the negative impact of the former on the
latter, researchers and practitioners alike are intrigued by the question how firms can remain innovative despite
undergoing downsizing.
Taking the special importance of innovation for developing countries into account, the researchers assess the
effect of different forms of labour flexibility on innovation during downsizing in a quantitative study across nine
developing countries in South Asia and Africa. As such, the research team broadened the focus from the thus
far primarily European and American context to emerging economies. In answering the question whether labour
flexibility can be a means to lessen the negative effect of downsizing on innovation, the researchers focus on
process innovation. Downsizing poses a special challenge for process innovation given its particular dependence
on knowledge exchange and collaboration across firm networks and technology institutions, which suffer
immensely during downsizing. Similarly, the focus on the predominant organizational form of small and
medium enterprises (SMEs) in developing countries offers an interesting research setting: For reasons
associated with proximity, interpersonal links in SMEs are much stronger than in large companies, which can
be expected to additionally amplify the negative effect of downsizing on innovation. The original working paper
is entitled ‘Success belongs to the Flexible Firm: How Labor Flexibility Can Retain Firm Innovativeness in
Times of Downsizing’ (2017) by Daniela Ritter-Hayashi, Joris Knoben and Patrick Vermeulen.
Research findings
The study focuses on process rather than product innovation because downsizing poses particular challenges for
the latter given its dependence on knowledge exchange and collaboration across firm networks and technology
institutions. The results of the study suggest that downsizing a firm’s workforce negatively impacts process
innovation in SMEs in emerging nations. However, the study indicates that labour flexibility can be a way for
firms to overcome the innovation challenges associated with downsizing. The researchers find that both
numerical flexibility, namely the use of temporary employment, as well as functional flexibility such as
employee training, can alleviate the negative impact of downsizing on innovation. Moreover, independent of
whether or not a firm is downsizing its workforce, wage and reward flexibity in terms of performance bonuses
for managers and employees positively impact innovation regardless of other factors.
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Policy implications
Casual work is a common practice in emerging nations, and was regularly observed in the qualitative studies of
EIP-LIC, in particular in SMEs with irregular order portfolios. Casual employment in these SMEs involves low-
skilled labour as part of the periphery workforce. The fact that casual workers frequently rotate allows them to
transport best practices and tacit knowledge from one firm to another. The casual workers usually lack
specialised expert knowledge, so the benefit of numerical flexibility does not concern higher level knowledge
supporting innovation. SME owners and managers could take both considerations into account in their staffing
strategy. Despite the overall lower education and thus knowledge levels in firms, the loss of firm-specific and
tacit knowledge associated with downsizing confronts firms with considerable innovation challenges.
Following the research findings, managers of SMEs in developing countries might wish to take functional
flexibility into account in their business strategies, because an increasing percentage of employees having
received training will positively moderate the relationship between downsizing and innovation. Focusing on the
psychological impact downsizing has on the remaining employees, employability as a human resouces
management strategy could be a substitute for employment security during downsizing to protect their
psychological contract with the firm.
Managers could thus consider functional flexibility as a means to mitigate downsizing’s negative effect on
innovation. In particular, firms might consider training a core group of staff to distribute existing knowledge
among the remaining firm members, to create new knowledge as well as to increase employees’ employability.
A final policy or management strategy implication for managers concerns providing performance bonuses. This
management practice is highly efficient in the emergent country context. Bonuses also moderate the effects of
a high rate of staff turnover, which is considerably higher in emerging compared to developed countries. Wage
and reward flexibility can, if designed accordingly, be a means for motivating employees to remain with the
firm given the prospect of monetary incentives.
4.2 Innovation and the role of informal institutions
The second scientific paper focuses on institutional voids and the role of informal institutions in innovation. The
original working paper is entitled ‘Multiple paths to firm innovation in Sub-Saharan Africa: the role of informal
institutions’ (2018) by Ayse Saka-Helmhout, Maryse Chappin and Patrick Vermeulen.
International business scholars have long recognized that variations in formal and informal institutions also
influence a firm’s economic activities. Differences in institutional arrangements among countries, in particular
between developed and developing economies, are widely acknowledged as affecting strategic choices of firms.
However, how these differences impact firms’ innovative behaviour is less clear. The institutional voids thesis
in IB suggests firms face constraints on economic exchange where formal institutions in capital, labour and
product markets and regulatory environments are weak or less efficient. In other words, the absence or
underdevelopment of formal institutions, such as regulatory rules and legal norms that undermine the workings
of the market, hinder mechanisms that enable buyers and sellers to come together, and increase transaction costs
of market activity is largely seen as an impediment to entrepreneurship and innovation. This has fuelled
international business scholars’ focus on the means by which firms mitigate the risks posed by institutional voids
by, for instance, creating business groups that offer the functions typically carried out by external markets, and
geographically clustering to create an efficient business environment.
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It is assumed that firms rely on culturally based informal institutions such as social networks to fill the gap
exposed by formal institutions. For instance, norms such as trust and obligation in family firms reduce agency
costs that stem from owner-management conflicts in weak institutional settings. In the absence of strong market
institutions, it is considerably costlier for controlling shareholders such as the family to gather reliable and
objective information to assess top management opportunism. What is taken for granted in these debates is the
substitutive nature of the interaction between formal—written rules sanctioned and enforced by the state—and
informal—unwritten cultural and normative rules that are not officially sanctioned and enforced—institutions .
Such a narrow focus on the nature of the relationship between formal and informal institutions risks missing
much of what drives innovation in institutionally-void settings.
The paper broadens the scope of research on institutional voids by examining the nature of the interaction—
substituting, complementary, or accommodating—between formal and informal institutions in a comparative
study. We ask how firm innovation is affected by formal and informal institutions as well as firm-level resources
in institutionally-void environments. More specifically, is it a single path, or are there multiple paths that lead
to firm innovation in developing economies? And are the institutional and firm-level resource causal
conditions mutually substitutable? In order to better understand the role played by informal institutions in
addressing institutional voids, we adopt a configurational comparative approach to firm innovation in four sub-
Saharan countries. The use of this method is justified by our intention to match theory and empirics. Formal and
informal institutions operate as a constellation of conceptually distinct characteristics that
commonly occur together.
More specifically, the paper tests the following hypothesis: The presence of institutional voids in combination
with the presence of firm-specific resources and the presence of informal institutions leads to firm
innovation. In this study, we explore the combinations of firm resources, formal institutions and informal
institutions that are sufficient for firms to be more innovative. The study adopts a configurational approach to
identifying combinations of conditions that result in innovation (it uses the ‘fs/QCA 2.5’ program to conduct a
crisp-set Qualitative Comparative Analysis (csQCA) of the data.). The EIP-LIC data are used on SMEs in the
manufacturing sector in four sub- Saharan countries (Ghana, Kenya, Tanzania and Uganda).
The empirical findings confirm the thesis of the current study that informal institutions substitute
underdeveloped formal institutions and in combination with firm-level resources lead to firm innovation.
However, informal institutions not only substitute weak formal institutions. They also complement more
developed formal institutions in the presence or absence of high levels of firm resources, or accommodate them
in the presence of high levels of firm resources to support firm innovation. This paper contributes to the literature
in three ways. First, it clarifies the interaction between formal and informal institutions in relation to firm
innovation in developing countries. Second, it captures multiple paths that firms can take to be innovative that
best fit their existing institutional context. Third, it highlights how nonmarket exchanges can complement the
perceived more effective regulatory environments to stimulate firm innovation in sub-Saharan Africa.
4.3 Gender diversity and innovation
In the fourth paper within the ‘Innovation Systems’ them analyses the relationship between gender diversity in
the ownership, management and workforce structure at the firm level and women’s economic opportunity at the
country level to improve innovation outputs. In present theory, there is an implicit assumption that higher levels
of women’s economic opportunity at a country level enable firms to better render the benefits gender diversity
34
can bring for innovation. The original working paper is entitled ‘Gender Diversity and Innovation: The Role of
Women’s Economic Opportunity in Developing Countries’ by Daniela Ritter-Hayashi, Patrick Vermeulen and
Joris Knoben.
Research Findings
The research shows that gender diversity at all levels in the organization has a positive effect on innovation in
the firms surveyed in low and lower-middle income countries in South Asia, Africa and the Middle East -
despite their below-average performance on a world-wide scale of measuring women’s economic opportunity.
Furthermore, the research illustrates that a country’s level of women’s economic opportunity plays an important
role in the relationship between gender diversity and innovation.
On the one hand, the results put forward that the positive effect of gender diversity on firms’ innovation
likelihood is amplified with increasingly equal opportunities for women. On the other hand, both gender
diversity in the ownership structure and in the overall workforce can have a negative effect on a firm’s likelihood
to innovate if the firm is operating in a country with very little economic opportunity for women.
It needs to be however pointed out that, extrapolated from this study, gender diversity only has a potential
negative effect on innovation in a handful of countries worldwide, ranging at the bottom of the women’s
economic opportunity ranking (lowest 5 countries for gender diversity in the workforce and lowest 15 countries
for gender diversity in the ownership structure).
Policy Implications
Based on the research results, it is essential to acknowledge the value of gender diversity for innovation and to
create awareness among managers and employees that innovation emerges and blossoms from gender diversity
at the firm level. Government agencies could develop special policies and programs which encourage and
support firms in hiring a more gender-balanced workforce, having more female top managers and supporting
firms with a gender diverse ownership structure. This could take the form of awareness raising programs
explaining the particular benefit of gender diversity for a firm’s likelihood to innovate.
Furthermore, the introduction of tax advantages, subsidies or other incentives targeted at increased gender
diversity at all hierarchical levels within a firm could be a driver for increased gender balance. Once awareness
is raised at the top ranks of firms, it is pivotal that managers initiate a change of attitude and organizational
culture top-down, encouraging women to voice their opinion, urging men to value women’s viewpoints and
knowledge in the innovation process, and reassuring management on the importance of promoting both men and
women based on their performance rather than their gender.
It is crucial to encourage increased levels of women’s economic opportunity at a country level as a prerequisite
for gender diversity to benefit innovation. Potential avenues are increased access of women to education to
decrease the gap in knowledge between men and women. Governments could initiate country-legislation
enabling women to better balance family and work demands such as improved childcare as well as maternity
and paternity leave. An additional avenue for policy makers is to encourage a social perception of women as
being equally valuable members of society like men, with the same rights and obligations.
On a practical level, supporting networking activities through women entrepreneurship associations seems an
effective instrument to strengthen women’s determination to pursue ambitions. Moreover, establishing programs
35
in which women entrepreneurs lend support to girls on their way of obtaining education can be of advantage.
This can take the form of financial support and motivational reinforcement for the girls themselves. Similarly,
successful women entrepreneurs can serve as a role model to girls’ families, which may be hesitant to invest in
their daughters schooling based on traditional gender norms and expectations. Moreover, to change the overall
public perception of women entrepreneurs while aiming at a ripple down effect to their immediate surrounding
and support system, campaigns celebrating the success of women starting a business can be a further avenue to
strengthen their societal position.
4.4 Imported inputs and product innovation
The fourth scientific paper within the ‘Innovation Systems’ theme addresses the imported inputs and product
Innovation, in Ghana among other countries. Innovation in LICs may manifest itself differently, not via high
profile technological and radical breakthroughs, usually measured by R&D expenditures or patents, but by more
incremental adoption and adaptation or new combinations of existing technologies. The drivers for innovation,
as identified in many studies, include the level of human capital and financial development in the economy as
well as the role of industrial policies and institutions. A relatively new insight concerning LICs stresses the role
of trade, and in particular the role of imported intermediate inputs, in promoting innovations in LICs. However,
there is as yet only limited understanding of the links between imported inputs and innovation and productivity.
The team of researchers from Tilburg University and the University of Louvain la Neuve investigated the effect
of newly imported input varieties on product innovation in five developing countries. The research aims to fill
this gap and addresses in particular the role of intermediate inputs for innovation in developing countries. The
original DFID research project working paper is entitled ‘Imported Input Varieties and Product Innovation:
Evidence from Five Developing Countries’ (2017) by Marijke Bos and Gonzague Vannoorenberghe .
Research approach and findings
The research specifically examines how access to imported intermediate inputs affects firm-level product
innovation in Ghana, Tanzania, Kenya, Uganda and Bangladesh. The research finds evidence that the number
of newly imported intermediate inputs has a significant positive impact on product innovations, in particular,
those that use new inputs and innovations for which a new input is an essential feature. The research suggests
that this effect comes from access to better quality imports.
However, it is important to note that the relationship between imported inputs and innovation can be explained
in two ways. Access to previously unavailable inputs may enable or inspire firms to use the inputs for a product
innovation. Looking at it from the other side, innovation unrelated to international trade may increase the
demand for imported inputs once manufacturing of the new or improved product has begun.
Moreover, the research revealed the necessity to adopt a broad understanding of innovation, namely a new or
significantly improved product, where new means new to the establishment and not necessarily new to the
market or world. Further insights in the data revealed that a significant proportion of the innovations are
incremental changes to existing products, and that most of the innovations are new only to the firm.
Policy implications
Innovation is considered central to growth in developing countries. A relevant policy aspect is that small
incremental innovations that specifically address local challenges can bring important changes that improve
36
welfare. In the early stages of development, it is definitely not just innovation involving high technology.
Understanding the drivers of innovation is of great importance to policy makers. Apart from the more traditional
western innovation policy approaches involving the establishment of Science and Technology (S&T)
institutions and patent systems, this research indicates the use of import of intermediate inputs as an effective
policy option. Policy makers in LICs should place greater emphasis on the importance of the effect of inputs on
innovation and productivity growth.
Policies involving openness to trade could be an important contributor to input-essential innovations in
developing countries. Policies to increase openness may therefore have a positive effect on the economy through
increased innovation, although there seems to be a substitution effect from non-input using innovations to
innovations that use new inputs. Further research on the origin effect of imported intermediate inputs is
warranted to base thorough conclusions on this finding.
This research also shows that while innovation has gained a more important role in firm-level surveys as a basis
for policy development, there is a need for more detailed questions on the role of imports in innovation to better
understand the effects in LICs. As opposed to, for example, the role of finance, information and markets, the
role of intermediate inputs has not received sufficient attention in policy research and analysis tools such as the
WS Enterprise Survey (including the Innovation module), Community Innovation Survey (CIS) and similar
firm-level innovation surveys. Policy makers in LICs should include the role of imports as an innovation driver
and explore the manifestations of incremental innovation.
4.5 Innovation and export
The fifth scientific paper within the ‘Innovation Systems’ theme assesses whether innovation directly influences
exporting behavior, because firms apply innovation as a strategy for gaining an international market share. A
firm’s ability to successfully compete on the international market is influenced by its capacity of introducing and
marketing both new and improved products.
Actually, the link between innovation and exporting has received considerable attention. One strand of research
investigates complementarity between exporting and innovation while the other examines the direction of
causality. Nevertheless, few studies take into account the possibility of both causalities occurring simultaneously.
Furthermore, a majority of these studies have been conducted in developed countries. For instance, previous
studies find evidence of learning by exporting in Sub-Saharan Africa (SSA) implying that participation on
international markets facilitates knowledge flows from customers and competitors. Yet, it remains unclear how
this mechanism affects the exporting-innovation relation.
A team of researchers from University of Nairobi and Radboud University investigated bi-directional
relationship between innovation and exporting in four countries in Sub-Saharan Africa. Specifically, the research
addressed the question whether there is a positive relationship between innovation and subsequent exporting and
that this relationship is mediated by market creation and with customer feedback mediating this relation. The
original working paper is entitled ‘Export and Innovation in Sub-Saharan Africa’ (2017) by By Laura Barasa,
Bethuel Kinyanjui, Joris Knoben, Peter Kimuyu and Patrick Vermeulen . The study sample consists of firms
located in SSA including Ghana, Kenya, Tanzania, and Uganda.
37
Research findings
The research finds that the relation between innovation and subsequent exporting is positive and significant.
However, we find a positive but non-significant relation between exporting and subsequent innovation. These
relations broadly nuance a relationship between innovation and exporting.
The research team also finds evidence that market creation mediates the innovation-exporting relationship since
the innovation process entails the introduction of new products and services on the marketplace. The market
creation significantly mediates about 32.5% of the effect of innovation on subsequent exporting. In agreement
with this, our results suggest that the technology-push mechanism accounts for the relationship between
innovation and subsequent exporting in the context of SSA.
Similarly but to a much larger extent, customer feedback is found to significantly mediate about 67.4%of the
effect of exporting on subsequent innovation. Furthermore, we find evidence that customer feedback mediates
the relation between exporting and innovation to a large extent (67.4%) suggesting that the demand-pull
mechanism is very critical in explaining this relationship. Taking into cognizance that the demand-pull
mechanism has received scant attention over the past years this finding gives rise to an important theoretical
implication arising from the empirical evidence of the demand-pull mechanism in SSA. We argue that the
recognition of market needs arising from customers on the export market constitutes a major driving force of
innovation in SSA.
Apart from contributing to the debate on the innovation-exporting relationship in the context of SSA, our paper
goes a step further to shift focus on disentangling the mechanisms underlying this interrelationship. This is an
area of study that has received scant attention particularly in the African context.
Policy implications
The findings reveal that whilst the main effect for the innovation-exporting relationship is significant, the reverse
relation remains unclear. Notwithstanding, the positive albeit non- significant relation between exporting and
innovation provides some nuanced support for the existence of a bi-directional relationship. Furthermore, the
technology-push mechanism underlies the innovation-exporting relation to a medium extent. Hence, innovation
policies aimed at fostering product innovation by providing incentives may be crucial for exporting. Such
policies may be useful in fostering the development of innovations with a high degree of novelty and are likely
to promote exporting through the creation of new market space.
Moreover, the study provides evidence that the demand-pull mechanism underlies the exporting-innovation
relationship. Customer feedback mediates the exporting-innovation relation to a very large extent. Therefore,
state capital expenditure focusing on information and communications technology infrastructure investment is
vital in enabling faster response to market needs. Additionally, export promotion policies encompassing
instruments such as export subsidies are likely to play a key role in stimulating innovation in SSA.
38
39
5 Finance for Productivity Growth
The ‘Finance for Productivity Growth’ team conducts a randomized control trial (RCT) in Ghana. By the time
of the writing of this report, the finance team is analyzing the data and writing papers to be available on the
project website in August 2018. Furthermore, the team produced three scientific papers, with particular relevance
to Ghana. The first paper addresses the question whether the usage of trade credit decreases with access to bank
credit, or whether the use of trade credit and bank credit are positively associated in Ethiopia. The second paper
analysed the determinants of - and the barriers to - the adoption of a profitable financial technology by SMEs in
Kenya. The third paper investigated the role of financial constraints in firms' skilled labour demand in Ugana.
The research findings of each paper are discussed and policy implications reviewed in the paragraphs below.
The associated policy briefs and many others are listed in the project website.
5.1 RCT: Improving small sized enterprises financial performance through goal-setting
The RCT under analysis is entitled ‘Improving small sized enterprises financial performance through goal-
setting: Evidence from an RCT with Cassava Producers in Ghana’. The partner in the RCT is the NGO
‘Innovations for Poverty Action (IPA)’ in Accra, which is a research and policy nonprofit organization that
discovers and promotes effective solutions to global poverty problems. IPA brings together researchers and
decision-makers to design, rigorously evaluate, and refine these solutions and their applications, ensuring that
the evidence created is used to improve the lives of the world’s poor. IPA works in a variety of fields, including
microfinance, agriculture, education, and health.
In partnership with top researchers in the field, IPA designs and implements randomized evaluations to measure
the effectiveness of programs and policies aimed at helping the poor. IPA specializes in randomized controlled
trials (RCTs) because this rigorous methodology, considered the gold standard of impact evaluation design,
allows to isolate the effects of a program from other factors. Like in medical trials, researchers assign participants
at random to different study groups. One or more groups receive a program (the “treatment groups”) and another
group serves as the comparison (or “control”) group.
The cooperation with Tilburg University in the framework of EIP-LIC concerned fieldwork to uncover
managerial barriers for small cassava processors in Ghana. Tilburg University and IPA created a representative
list of cassava processing firms (1000 firms) identified with the support of the National Board for Small Scale
Industries (NBSSI) in the Eastern Region of Ghana3. From this listing, a sample of 425 firms was generated
based on specific inclusion criteria.
These 425 firms were surveyed from August to September 2017, and subsequently randomly assigned to three
different experimental arms from October to December 2017. The districts and their respective number of
communities in Nsawam – Adoagyiri (14 communities), Ayensuano (3 communities), Akuapem North (13
communities) and Upper West Akyem (1 community) NBSSI played a prominent role in the intervention,
leading the training of 139 (46.7%) of the 298 total firms trained during the productivity phase. Business
3 The National Board for Small Scale Industries (NBSSI) is the apex governmental body for the promotion and development of the
Micro and Small Enterprises (MSE) sector in Ghana. NBSSI is an agency under the Ministry of Trade and Industry with its Head
Office in Accra, Secretariats in all the regional capitals, and Business Advisory Centers in 170 district capitals. The focus of NBSSI
is to ensure that SMEs have access to high quality, affordable, and accessible business development services through the provision
of client-focused quality programs, supported by superior customer service, and facilitated by building strong relationships with stakeholders.
40
Advisors (BAs) conducted these firm trainings. The intervention was implemented in 31 communities - four
municipalities/districts - in the Eastern Region of Ghana.
The expected outcome will address the impact on financial performance through goal-setting. The first part of
the RCT is on the impact of goal setting as a particular management practice addressing the following key
questions:
- Does implementing goal setting as a management practice improve employee’s productivity and/or
satisfaction in small firms in the developing world? If yes, does the increase in productivity and/or
employee’s satisfaction improve financial performance of the firm and help it grow?
- Does the impact of goals on productivity and/or employee’s satisfaction depend on employees’ idiosyncratic
characteristics (e.g. preferences, gender, age, experience, etc.), the type of monetary payment (e.g. piece-
rate or fixed), or the employer/firm’ idiosyncratic characteristics (e.g. cooperative or single owner, size of
the firm, age of the firm, etc.)? If no, why not?
The second part of the RCT is on the impact of goal setting at work on life goals and aspirations of employees
and employers addressing the following key questions::
- Does learning to set goals at work increase the likelihood of setting goals at home?
- Does learning to set goals at work increase life aspirations? If yes, does the impact of goals at work on
personal goals and aspirations depend on employees and employers’ idiosyncratic characteristics at
intervention?
The third question of the RCT is on adoption addressing the following key question:
- Do firms trained with goal-setting management practices adopt the practice once the intervention is over? If
no, why not?
5.2 Trade credit and access to finance
The first scientific paper within the ‘Finance for Productivity Growth’ theme investigates the relationship
between bank credit and trade credit in Ethiopia. The underlying idea of the paper is based on the fact that many
African countries have achieved promising economic growth rates in recent years. However, credit market
imperfections are still persistent, resulting in limited access to formal bank credit for many firms, especially
small and micro enterprises. Trade credit, as a method of direct ‘in-kind’ business financing, can be popular as
an alternative to bank credit in locations with limited financial sector development. From this perspective, trade
credit and bank credit can be considered substitutes.
Specifically, the research question of the paper addressed whether usage of trade credit decreases with access to
bank credit, or whether the use of trade credit and bank credit are positively associated. The research further
highlights the role of formality of firms. The team analysed firm-level data from 5,500 Ethiopian retailers. The
original working paper is entitled ‘Trade Credit and Access to Finance of Retailers in Ethiopia’ (2017) by
Thorsten Beck, Mohammad Hoseini and Burak Uras.
Research approach and findings
The findings suggest that bank finance and trade credit are substitutes in Ethiopia. In locations with lesser access
to formal bank finance, the use of trade credit is higher. The extension of trade credit by suppliers generates a
credible signal to banks with regard to the customers’ creditworthiness, which can make trade credit and bank
41
credit complementary on the individual firm-level. For informal retailers, bank credit acts as a counterpart to
trade credit in the sense that higher bank loan exposure is associated with greater access to trade credit. For
formal firms, however, the research reveals that having more bank loans is not a significant explanatory factor
of the use of trade credit. These results could imply that receiving bank credit increases the creditworthiness of
informal firms that have less transparent operations and motivates their suppliers to extend them trade credit.
Formal firms, on the other hand, are more transparent and the level of obtaining trade credit is mainly restricted
by the availability of such sources of external finance in the locality.
Having a relationship with a bank can also act as a signal of the creditworthiness of firms to their suppliers and
reduce the agency problems associated with trade credit. An important issue for studying trade credit as a form
of financing is its substitutability versus complementarity with respect to bank credit. The researchers find that
trade credit usage is more prevalent in locations with lower access to finance, consistent with the substitutability
theory. The research, however, also finds that bank credit acts as a complement to trade credit for informal firms
who lack transparency and suffer more from agency problems with their suppliers.
Policy implications
Although the link between trade credit and bank credit has been studied in the literature, investigating this
relationship in the context of a developing country with low levels of access to finance provides several original
insights for policy makers. Financial inclusion has been a key topic in development policy debates in many
underdeveloped countries, but most policy initiatives address the direct effect of bank credit constraints.
This research stresses the importance of the role of informality in understanding the association between trade
credit and bank credit. Informal firms feature non-transparent operations and rely on cash-based transactions,
partly to hide from tax authorities and partly due to the unavailability of bank accounts. Operational transparency
is a major element in accessing external finance, because without transparent (formal) accounting standards,
creditors cannot determine the quality of borrowers. Informal sector promotion policies could focus on the
notions and necessity of transparent operations though awareness, training and education policies.
Facilitating trade credit and bank credit could mutually strengthen each other, for instance, in combined policy
and development programmes integrating the two. Policies to expand financial inclusion by increasing
operational transparency might alleviate the agency problems of informal enterprises vis-à-vis suppliers and
enable them to obtain not only formal finance from banks but also informal finance in the form of trade credit.
For the formal sector, however, the research suggests less expected policy impact. Although obtaining a bank
loan is positively associated with receiving trade credit for informal firms, the team does not find a similar
significant link for the sample of formal firms.
5.3 Technology adoption and mobile money
Understanding the constraints that firms in developing countries face to adopt productive technologies is crucial
for designing appropriate development policies. Over the last decades there have been important advancements
that deepened the understanding of the drivers and the barriers of technology adoption, including mobile
technologies. For instance, mobile-money is an emerging phenomenon offering the option money transfers via
simple cell-phone text-messages.
This technology was amongst others launched in Kenya in 2007 under the name of M-PESA. Since then, it has
quickly reached remarkable adoption rates among Kenyan households. As of 2016 in more than 95% of the
42
households this technology has been adopted. The use of mobile-money among Kenyan businesses, however, is
relatively low. Less than 40% of the small and medium sized enterprises (SMEs) report using M-Pesa services
when transacting with their customers or with their suppliers.
For the second paper within the “Finance for Productivity Growth’ theme, a team of researchers from Tilburg
University investigated the determinants of - and the barriers to - the adoption of a profitable financial
technology by SMEs in Kenya. Specifically, the study involved a field experiment focusing on the adoption of
mobile-money as a payment technology by restaurants and pharmacies in Nairobi. The original working paper
is entitled ‘Technology Adoption by Small and Medium Businesses: Experimental Evidence from Mobile
Money in Kenya’ (2017) by Patricio Dalton, Haki Pamuk, Daan van Soest, Ravindra Ramrattan and Burak Uras.
Research approach and findings
The field experiment studied what factors foster adoption of mobile money technologies by SMEs, and what the
barriers to adoption are. The research team offered a randomly selected sample of restaurants and pharmacies
the possibility to sign up, on their behalf, for a novel mobile-money technology which allows an efficient mobile-
money based transaction between a business and a customer. A key feature of M-Pesa is that it is profitable, it
does not involve any risk, and it has no registration fee. In short, the intervention eliminates the transaction costs
associated with the adoption of the technology.
The study found that over a 60% of the restaurants owners/managers decided to sign up for this new technology,
while the adoption rates turned out to be about 20% among pharmacies. Moreover, study provides causal
evidence that small bureaucratic hassles and lack of information constitute a major barrier for adopting this
profitable technology. The team further found that neither risk, time preferences or trust are important factors.
Small situational barriers play a decisive role in preventing people to take advantage of profitable available
options.
The motivations of those business owners who decided not to adopt the technology remain somewhat unclear.
One plausible explanation of the non-adoption behaviour is status quo bias. If the business took the status quo
(i.e. no technology) as a reference point, then any change from the status quo, in this case adopting the novel
technology, would be perceived as a loss. If the business owners were loss averse, they would be less likely to
adopt.
Policy implications
The research suggests that policy and programs to promote new technology adoption could be best designed by
addressing the (situational) barriers, particularly bureaucratic hassles and lack of information. A government
program providing the mobile technology for free, which is a relatively low-cost intervention, would bring
substantial commercial benefits for the SMEs. Moreover, such intervention will repay itself in terms of increased
taxation revenues. Providing the technology for free might also result that at a certain point in time a ‘tipping
point’ will be reached; the remaining SMEs switch to the mobile technology because over it has become
common practice. This will also moderate the effect of the status quo bias.
Along with providing the technology for free, an additional policy recommendation involves the lowering of the
bureaucracy, and likely the application procedures for the mobile banking accounts; A one-stop shop for getting
the mobile technology with flexible guarantee requirements, for instance offered as a package with a trial period.
43
The lack of information can be addressed effectively once the application bureaucracy is eased. Information
campaign to reach out and assist the SME owners to apply for mobile banking accounts.
5.4 Finance and demand for skill
Sub-Saharan Africa experienced a decade of growth between 2000 and 2012, in which average annual GDP
growth was over 4.5%. However, recent studies indicate that this growth has not translated into similarly high
growth rates in job creation. Current growth comes largely from a small base of industry and the manufacturing
sector, which will not come close to absorbing the millions of new workers entering the labour force each year.
What is even more challenging is that many educated and skilled workers in Africa fail to find employment.
The supply of highly skilled human capital who remain unemployed raises the question of whether there is a
shortage of firm-level demand for skill in African economies.
Academic studies stress the importance of access to external funding for firm-level investment decisions,
economic development and growth. What about the interactions between access to finance and employment
creation for educated workers? There is little research addressing the effect of financing constraints on hiring
decisions, especially of skilled workers.
For the third paper within the “Finance for Productivity Growth’ theme, a team of researchers from Cass
Business School (City University London) and Tilburg University investigated the role of financial constraints
in firms' skilled labour demand. Specifically, using a small business survey from Uganda, the research explored
whether skilled job creation rises with access to external finance. The original working paper is entitled ‘Finance
and Demand for Skill: Evidence from Uganda’ (2016) by Thorsten Beck, Mikael Homanen and Burak Uras.
Research approach and findings
The research shows that that the extent to which micro and small businesses expand skilled employment, as
their sales and profits increase, depends significantly on access to external funding. Firms with positive
performance and a bank loan hire more trained and experienced employees. Thus, growing and profitable small
businesses create more jobs for trained and experienced workers - which is interpreted as demand for skill - if
they have access to external finance.
The analysis does not reveal a significant relationship in the case of hiring casual employees or family and
friends in the informal context, suggesting that financing constraints are more likely to bind in the context of
employment contracts associated with experienced and trained employees with high human capital intensity.
The results also suggest that financially constrained firms save their excess resources instead of investing in a
more sophisticated and skilled workforce.
Policy implications
The research findings underline the importance of well-developed financial systems for policies focusing on job
creation. Firms with greater financial flexibility are more likely to hire skilled labour once their performance
improves. For policy makers focusing on the challenge of creating formal and permanent jobs in a developing
society, devising a complementary financial sector policy is equally important. The policy should go beyond
helping firms directly to strengthening efficient financial systems and credit programmes as well.
44
Better access to external funding can thus be an accelerator of human capital investment demand and growth.
Policy makers must also acknowledge that firms who are financially constrained save a greater proportion of
their additional profits (or pay other expenses associated with financial constraints) and therefore cannot invest
further in greater levels of employment; if access to finance is difficult, one could question the optimal
effectiveness of employment creation policies.
For government, interest rates by state banks. would be a first point of attention in policy efforts to create formal
employment of higher skilled labour. Against this background, policy monitoring systems for employment
creation could include the degree of access to finance. Looking at it from the other side, formal credit policies
and programmes could include formal job creation, since they are linked.
Better performance and financial access do not explain the hiring rates of informal employees, which include
casual and family employees. Labour creation policies should thus acknowledge the different policy instruments
for creating employment for higher educated and skilled workers on the one hand, and informal employment on
the other.
In many developing countries, young people are educated and governments need to find ways to employ these
highly qualified workers. With better access to finance, a firm’s workforce can become more permanent and
potentially more stable as well. As firms grow and become profitable, employment opportunities will increase
for those who are formally trained, educated and more experienced. The policy relevance of such stable
employment for higher educated staff centres on greater commitment of staff in firms. This will particularly
positively affect firms’ survival and innovation efforts, and is thus a vital issue for policy makers in many
nations, and especially in developing countries.
45
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Annexes
Annex 1: Series of EIP-LIC working papers
Innovation systems
1. Bos, M. J. D., B. V. G. Goderis and G. C. L. Vannoorenberghe. 2014. Inter-industry Total Factor
Productivity Spillovers in India. DFID Working Paper. Tilburg: Tilburg University.
2. Barasa, L., P. Kimuyu, P.A.M. Vermeulen, J. Knoben and B. Kinyanjui. 2014. Institutions, Resources and
Innovation in Developing Countries: A Firm Level Approach. DFID Working Paper. Nijmegen: Radboud
University *)
3. Osoro, O., G. Kahyarara, J. Knoben and P.A.M. Vermeulen. 2015. Effect of Knowledge Sources on Firm
Level Innovation in Tanzania. DFID Working Paper **)
4. Osoro, O., S. Kirama, J. Knoben and P.A.M. Vermeulen. 2015. Factors Affecting Engagement and
Commercialization of Innovation Activities of Firms in Tanzania. DFID Working Paper
5. Barasa, L. P. Kimuyu, B. Kinyanjui, P. Vermeulen and J. Knoben. 2015 R&D, Foreign Technology and
Technical Efficiency in Developing Countries. DFID Working Paper
6. Vannoorenberghe, G. 2015, Exports and innovation in emerging economies, Firm-level evidence from South
Africa. DFID Working Paper. Universite Catholique de Louvain and Tilburg University
7. Daniela Ritter-Hayashi, Patrick Vermeulen, Joris Knoben Gender Diversity and Innovation: The Role of
Women’s Economic Opportunity in Developing Countries DFID Working Paper. Nijmegen: Radboud
University
8. Barasa, L., B Kinyanjui, J. Knoben, P. Kimuyu and P. Vermeulen. 2016. Export and Innovation in Sub-Saharan
Africa. DFID Working Paper. Nijmegen: Radboud University
9. Bos, M. and G. Vannoorenberghe. 2017 Imported input varieties and product innovation: Evidence from five
developing countries
10. Ritter-Hayashi, D., P. Vermeulen and J. Knoben. 2017. Success belongs to the Flexible Firm: How Labor
Flexibility Can Retain Firm Innovativeness in Times of Downsizing. Working paper Radboud University
11. Thuy M.T. Phung, P. Vermeulen, J. Knoben and Dat Tho Tran. 2017. Made in Vietnam: The Effects of
Internal, Collaborative, and Regional Knowledge Sources of Product Innovation in Vietnamese Firms Working
paper Radboud University
12. Voeten, J, A. A, Saiyed and Dev K. Dutta. 2017. Emerging Economies, Institutional Voids, and Innovation
Drivers: A Study in India. DFID working paper
13. Turaga, R.M. and Vishal, G. 2017. Adoption of ISO 14001 Standards in Indian Manufacturing Firms, DFID
project Working Paper, Indian Institute of Management Ahmedabad
14. Saka-Helmhout, A., Chappin, M. and Vermeulen, P. 2018. Multiple paths to firm innovation in sub-saharan
africa: the role of informal institutions, DFID working paper
*) Paper accepted in ‘Research Policy’: http://www.sciencedirect.com/science/article/pii/S0048733316301986
**) paper is accepted in ‘Innovation and Development’: http://dx.doi.org/10.1080/2157930X.2016.1195086
48
‘Finance for Productivity Growth’
1. Beck, T. H. L., H. Pamuk, R.B. Uras. 2014 Entrepreneurial Saving Practices and Business Investment:
Theory and Evidence from Tanzanian MSEs. Tilburg: Tilburg University. Paper accepted in journal
“Review of Development Economics”
2. Beck, T. H. L. and M. Hoseini. 2014. Informality and Access to Finance: Evidence from India. Tilburg:
Tilburg University.
3. Beck, T. H. L., H. Pamuk, R.B. Uras and R. Ramrattan. 2015. Mobile Money, Trade Credit and Economic
Development: Theory and Evidence (new title: “Payment Instruments, Finance and Development” R&R
for Journal of Development Economics”). Tilburg: Tilburg University.
4. Dalton, P., Nguyen Nhung and J. Ruschenpohler. 2016. The Right Amount of Income Variability:
Evidence from Small Retailers in Vietnam. Tilburg University.
5. Beck, T. H. L.,M. Homanen and B. Uras, B. 2016. Finance and Demand for Skill: Evidence from Uganda.
Tilburg University
6. Dalton, P., H. Pamuk, D. van Soest, R. Ramrattan and B. Uras. Technology Adoption by Small and Medium
Businesses: Experimental Evidence from Mobile Money in Kenya.
7. Dalton, P., J. Rueschenpuller and B. Zia. Aspirations of Small Firms: Evidence from Jakarta
8. Beck. T., M. Hoseini and B. Uras. 2017. Trade credit and access to finance of retailers in Ethiopia. DFID
Working paper, Tilburg University
9. Dalton, P., H. Pamuk, D. van Soest, R. Ramrattan and B. Uras. The effect of Mobile Money on Small and
Medium Businesses: Experimental Evidence from Kenya.
10. Dalton, P., J. Rueschenpuller, B. Uras and B. Zia. Learning business practices from peers: Evidence from
an RCT in Jakarta. (*)
11. Naveed Ahmed. Relationship Lending and Terms of Credit: Evidence from Firm Level Data in Bangladesh
12. Dalton, P., J. Rueschenpuller, B. Uras and B. Zia. Framing Effects and Small Businesses Performance:
Experimental Evidence from Urban Indonesia (^)
13. Dalton, P., Ty Turley. Developing Goals for Development. Experimental Evidence from Small Cassava
Producers in Ghana.
All papers are accessible at the EIP-LIC project website: https://www.tilburguniversity.edu/dfid-innovation-and-growth/
49
Annex 2: Highlights of DFID/World Bank EIP-LIC survey Ghana
By William Baah-Boateng and Michael Danquah (University of Ghana)
1. Introduction
The data used for the discussion of the Ghana country report comes from the survey report on Innovation and
Growth in Ghana. This survey report comprises of the Ghana 2013 Enterprise Survey (ES), the Ghana 2013
Innovation Follow-up Survey (IFS) and the Ghana Manufacturing Innovation Capability Survey (ICS).
The Ghana 2013 Enterprise Survey (ES)
Collected in 135 economies around the world, the World Bank Enterprise Survey is a firm-level survey of a
representative sample of the economy's service and manufacturing firms. The survey includes a wide range of
topics including access to finance, corruption, infrastructure, crime, competition, and performance measures.
The Enterprise Survey was administered in Ghana in 2007 and 2013. We use the 2013 data, which covers 720
service and manufacturing firms.
The Ghana 2013 Innovation Follow-up Survey (IFS)
The survey is a follow-up survey to the Enterprise Survey and re-visits firms already interviewed during the ES
to collect firms-level data on innovation and innovation-related activities. This module is administered to a subset
549 service and manufacturing firms
The Ghana Manufacturing Innovation Capability Survey (ICS)
This survey is a collaboration between Tilburg University and the Enterprise Analysis Unit (DECEA) of the
Development Economics Group of the World Bank. The ICS is a follow-up to and complements the 2013 Ghana
Innovation Follow-up Survey undertaken by the World Bank Group, and aims at studying the innovative
activities and innovative capabilities of manufacturing firms. The data has been linked to the Ghana 2013
Innovation Follow-up Survey and Ghana 2013 Enterprise Survey, enabling a richer analysis of the links between
innovative capabilities, innovation and the performances of manufacturing firms in the country. This survey
covers only manufacturing firms with a sample size of 201 firms. These firms were all part of the Ghana 2013
Enterprise Survey and Innovation Follow-up survey.
Three levels of stratification were used for the Enterprise Survey in Ghana: sectors/industry, establishment size,
and region. The sectors were stratified into four manufacturing subsectors (food, textiles and garments,
chemicals and plastics, other manufacturing) and two service subsectors (retail and other services). The size
stratification was defined as the following: small (5 to 19 employees), medium (20 to 99 employees), and large
(more than 99 employees). Regional stratification for the Ghana ES was defined into four regions: Accra, North
(Kumasi and Tamale), Takoradi, and Tema. Except the North, all regions are coastal cities.
Figure 1 shows how the firms are distributed by sectors. Out of the 549 firms, 284 representing 52% are found
in the manufacturing sector while firms in trade and other services sectors account for 24% and 19% respectively.
The remaining 26 firms (or 5%) are in construction.
50
Figure 1: Distribution of Firms by Sectors (%)
With regards to the size of the firm (see Figure 2), majority of the firms representing 65.6% are small employing
between 5 to 19 employees. This is followed by medium sized firms (26.2%) employing 20-99 employees. The
larger firms employing more than 100 employees form only 8.2%.
Figure 2: Distribution of Firms by Size (%)
The distribution of firms by location (see Figure 3) indicates that almost half of the firms (49.7%) surveyed in
the ES are located in Accra, (the capital) in the Greater Accra region. This is followed by Tema (21.9%), a
metropolis in the Greater Accra region. This shows that about 70% of the firms are located in the Greater Accra
region alone. Therefore the firms are largely concentrated in the Greater Accra region. The north comprising
Kumasi and Tamale accounts for 20.4% of firms whilst only 7.9% of firms are found in the Takoradi area.
Manufacturing, 284, 52%
Construction, 26, 5%
Trade, 133, 24%
Other services, 106, 19%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
small (5-19employees)
medium (20-99employees)
large (more than 100employees)
65.60%
26.20%
8.20%
51
Figure 3: Distribution of Firms by Location (%)
Considering the sub sample of manufacturing firms that were in the Innovation Follow-up Survey and Innovation
Follow-up Survey, there is almost no difference with the pattern discussed in the ES, except that these samples
contain smaller and fewer large firms. The ensuing discussion largely focuses on the 265 service and 284
manufacturing firms that were administered questionnaires in the Innovation Follow-up Survey (549 in total),
and the 284 manufacturing firms in the Innovation Capability Survey.
2. Statistical Analysis
2.1 General Description of the Sample
2.1.1 Distribution of Firms by Sector
Table 1 presents the distribution of the firms by sectors and their sub-sectors. Across all sub-sectors in the
sample, the sub sector with the highest percentage (16.58%) of firms is the retail services sub-sector (that is in
the services sector) whilst the sub-sector with the least proportion (0.36%) of the firms are the transport machines
and recycling sub-sectors which are both found in the manufacturing sector.
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
45.00%
50.00%
Accra North Takoradi Tema
49.70%
20.40%
7.90%
21.90%
52
Table 1: Distribution of firms by industry and major subsectors
Code Sector
Total
Sample
Percentage
(%)
Manufacturing 284 51.73
15 Food 44 8.01
17 Textiles 4 0.72
18 Garments 19 3.46
19 Leather 4 0.72
20 Wood 15 2.73
21 Paper 3 0.55
22 Publishing, printing, and recorded media 48 8.74
23 Refined petroleum product 3 0.55
24 Chemicals 17 3.10
25 Plastics & rubber 17 3.10
26 Non metallic mineral products 16 2.91
27 Basic metals 8 1.46
28 Fabricated metal products 52 9.47
31 Electronics (31 & 32) 3 0.55
34 Transport machines (34 & 35) 2 0.36
36 Furniture 27 4.92
37 Recycling 2 0.36
Construction 26 4.74
45 Construction Section F 26 4.74
Service 239 43.54
50 Services of motor vehicles 35 6.38
51 Wholesale 42 7.65
52 Retail 91 16.58
55 Hotel and restaurants: section H 41 7.47
60 Transport Section I: (60-64) 24 4.37
72 IT 6 1.09
Total 549 100.00
53
Within the manufacturing sector, the sub-sector with the most number of firms (52) is the fabricated metals sub-
sector whereas the lowest number of firms (6) within the services is the IT sub-sector.
2.1.2 Turnover, Employment and Labour Productivity
Table 2 reports on the turnover, employment and labor productivity of the firms. The average turnover of the
firms for the year 2012 was $3,666.28 with half of the firms recording 150,000. However, the growth in turnover
for the firms on the average between 2009 and 2012 was -18.16%. The table also shows that one half of the
firms have been in operation for less than 13 years with the average being about 14 years. Hence the oldest firm
is 76 years. About three-quarters of the firms employed 21 persons in 2012 whilst employment growth between
2009 and 2012 on the average was 0.26%. The mean labour productivity for the firms was 105.02.
Table 2. Basic Descriptive statistics
Variable Minimum p25 p50 p75 Maximum mean N
Turnover 2012 (‘000) 3 40 150 800 180,535 3,666.28 432
Turnover growth 2009-12 -3,224.8 -.991 -.989 -.985 10.64 -18.16 379
Age 1 7 13 20 76 14.88 542
Employment 2012 5 6 9 21 620 27.04 547
Employment growth (2009-
2012) -.76 0 0 .33 11 .26 499
Labour Productivity (‘000) 0.438 5 14 50 11,160 105.02 431
Source: Ghana Manufacturing Innovation Capability Survey (ICS)
2.2 Sales and exports
Figure 4 shows the exports status of firms and indicates that a larger proportion of the firms are engaged in
indirect exports than direct exports. Thus, 4.0% of firms are reported to engage in indirect exports compared
with 3.1% involved in direct exports.
Figure 4: Export Status of Firms (%)
Source: Ghana Manufacturing Innovation Capability Survey (ICS)
0
1
2
3
4
Direct Exports Indirect Exports
3.14.0
54
Table 3 describes the number of firms who are into direct or indirect exports and the proportional range of their
sales, which are accrued from exports. Most of the firms surveyed are not involved in direct (92.5%) or indirect
(88.8%) exports. Out of 547 firms, 20 indicated that indirect exports account for between 1-10% of their revenue,
18 indicated that indirect exports account for between 11-30%, 7 revealed that indirect exports account for
between 31-50% of their sales and 16 revealed that indirect exports accounted for between 51-100% of their
sales.
Table 3: Number of Firms exporting different % of output
% range of Sales
Exported Direct exports Indirect exports
0% 506 (92.5) 486 (88.8%)
1-10% 12 (2.2%) 20 (3.7%)
11-30% 10 (1.8%) 18 (3.3%)
31-50% 7 (1.3%) 7 (1.3%)
51-100% 12 (2.2%) 16 (2.9%)
Total No of Firms 547 547
Note: Percentage shares in parenthesis
Moreover, out of 547 firms, 12 indicated that direct exports constitute 1-10% of their revenues, 10 revealed that
11-30% of their revenue is obtained from direct exports, 7 revealed that 31-50% of their sales comes from direct
exports and 12 indicated direct exports sales make up 51-100% of their total sales.
2.3 Supplies and imports
Figure 5 gives a pictorial presentation of how firms obtained their material inputs and showed a difference of 4
percentage points in favour of domestic origin. Supplies from domestic source constitute 52% while the
remaining 48% is procured from foreign source. This indicates that these firms purchase more local inputs or
purchase more of their input materials from local importers.
Figure 5: Sources of input supplies (%)
foreign origin48%
domestic origin52%
55
Table 4 describes the proportion of the sources of the material inputs of the firms. Out of 547 firms, 32.5%
acquire all their inputs from domestic sources whilst 23.2% acquire none of their inputs from the domestic
sources. Moreover, out of 280 firms, 5.4% procure between 91-99% of material inputs from foreign sources
whilst 5.4% procure between 1-10% of their material inputs from foreign sources. From the total sample of 547
firms, 91 firms (32.5%) and 65 firms (23.2%) indicate that 100% of material inputs are from domestic and
foreign origin respectively.
Table 4: No. of Firms using different % of material inputs from
domestic & foreign sources
% range of
materials inputs Foreign origin Domestic origin
0% 91(32.5%) 65 (23.2%)
1-10% 15 (5.4%) 29 (10.4%)
11-30% 21 (7.5%) 23 (8.2%)
31-50% 22 (7.9%) 28 (10.0%)
51-70% 26 (9.3%) 17 (6.1%)
71-90 25 (8.9%) 22 (7.9%)
91-99% 15 (5.4%) 5 (1.8%)
100% 65 (23.2%) 91 (32.5)
Total No of Firms 280 547
Note: Percentage shares in parenthesis
2.4 Innovation
2.4.1 Product and process innovation
Table 5 reports on the proportion of the types of innovation which the various sectors have embarked upon in
both product and process. With the exception of manufacturing sector, all the other sectors have undertaken more
of product innovation than of process innovation. The construction sector is the sector which has carried out the
highest rate of product innovation (34.6%) whilst the manufacturing sector carried out the lowest rate of product
innovation. Regarding process innovation, manufacturing sector (32%) has the highest rate of process innovation
whilst the construction sector (11.5%) has the lowest rate of process innovation. Comparing the firms in the trade
sector and those in the other service sector, it is observed that firms in other services sector embark on more
innovation in both product and process than firms in trade sector.
56
Table 5: Innovation by Sectors
Sector Product innovation Process innovation N
Manufacturing 26.8% 32.0% 282
Construction 34.6% 11.5% 26
Trade 27.8% 17.3% 132
Other service 30.2% 24.5% 104
All 28.1% 26.1% 544
Figure 6 gives a picture of the market orientation of the types of innovation. In all the spheres of market
orientation, the product innovation (local=43%, national= 23%, International= 5%) the firms undertake is
relatively newer to the market than the process innovation (local=29%, national= 13%, international= 3%) of
the firms. Irrespective of the type of innovation, least proportion of firms report of innovation being new to the
international market while greatest proportion of firms found innovation to be new to the local market. This is
not surprising because due high degree of competition in international market than local or national market.
Figure 6: Process and product innovation market orientation in Ghana (%)
Note: Process innovation orientation (N=180) Product innovation orientation (N=144)
An illustration of the objectives for embarking on process innovation is shown in Figure 7. The total number of
process innovating firms that responded to this question was 181. The principal motive for undertaking process
innovation for most firms is to improve upon the quality of their products and services (89%), which is closely
followed by the need to increase production (88%), then increasing the flexibility of product or services offered
(85%) and increasing the speed of production or speed of offering services (83%). Complying with regulations
is the least (41%) objective for which firms undertake process innovation.
29.0
43.0
13.0
23.0
3.05.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
50.0
Process i Product
Pe
rce
nta
ge (
%)
Local
National
International
57
Figure 7: Objectives of process innovation (%)
Qual. Provides the percentage of innovating firms that report that increasing the quality of products and services offered by the
firm was the main objective. Prod. relates to increasing the total production of goods and services; Flexib. to increasing the
flexibility of production or service offered; Speed prod. to increasing the speed of production or speed of offering service; Speed.
Del. to increasing the speed of delivery to the customer; Cost to decreasing the cost of production or offering service; Waste to
reducing waste or errors; Regulation to complying with regulations and standard. N is the number of firms reporting on the reasons for process innovation.
From the total number of 14 respondents, the reasons for which the firms carry out product innovation are
illustrated in Figure 8. The desire to open up to new markets or increase market share ranks highest (95%) on
the objectives for product innovation whilst replacing a product or service offered by the firm was the least
reason (21%) for embarking on product innovation. Other reasons include the need to extend the range of
products or services offered by the firm (92%), competition to offer products and services (70%), cost of offering
a service (28%), regulation to comply with regulations and standards (37%) among others.
Figure 8: Objectives of product innovation (%)
Replace provides the percentage of innovating firms that report that replacing a product or service offered by the firm was the main
objective; Range means that the objective for innovating was to extend the range of products or services offered by the firm. New
markets relates to opening up new markets or increasing market share; Cost to decreasing production costs or costs of offering a
service; Competition to offer products and services already offered by competitors; Regulation to comply with regulations and
standards; Sales drop to address decreasing demand for other products and services. N is the number of firms reporting on the
reasons for product innovation
41.0
59.0
61.0
77.0
83.0
85.0
88.0
89.0
0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0
Regulation
Waste
Cost
Speed delivery
Speed production
Fkexibility
Production
Quality
% of Innovating Firms
21.028.0
37.040.0
70.092.0
95.0
0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0
Replace
Regulation
Cometition
New Market
% of product innovating Firms
Ob
ject
ive
s
58
2.4.2 Innovation activities
Figure 9 shows the types of innovation activities which the firms have engaged in. Most of the firms by way of
innovation, procured new equipment (43%), a little over a quarter (27%) of the firms acquired formal training,
almost two-fifths (17%) and (4%) embarked on internal R&D and external R&D respectively with external R&D
being of low importance.
Figure 9: Innovation activities (%)
Note: Total Sample is 543
2.4.3 Sources of information for innovation
Table 6 reports on the channels that the firms source their information to embark on their innovation activities.
Customer feedback (30.8%) is the most important source of information for innovation for the firms, followed
by products or services available in the market (14.8%), suppliers (11%), and in-house R&D and personnel
(9.9%) respectively. Firms do not obtain any source of information from university or research institutes.
Government ministries or programs (0.9%) provide enough information for innovation for these firms. However,
their least (0.4%) source of information for innovation is recent hires from other firms.
Table 6: Sources of information for innovation
Variable
% of
Firms
Number of
Firms
Customer feedback 30.8 165
Products or services available in the market 14.6 78
Suppliers 11.0 59
In-house R&D and personnel 9.9 53
Internet 9.7 52
Business associations and conferences/exhibitions 9.3 50
Knowledge from parent or another firm 6.3 34
0.0
10.0
20.0
30.0
40.0
50.0
NewEquipment
FormalTraining
Internal R&D External R&D
43.0
27.017.0
4.0% o
f in
no
vati
ng
firm
s th
at
un
de
rto
ok
typ
e o
f ac
tivi
ty
Type of innovation activity
59
Consultancy firms 4.5 24
Professional journals and trade publications 2.6 14
Government ministries or programs 0.9 5
Recent hires from other firms 0.4 2
Universities/research institutes 0.0 0
N 100.0 536
2.4.4 Barriers to innovation
Table 7 depicts the barriers that the firms encounter in the quest to innovate. A little over three-quarters (79.1%)
of the firms indicated that lack of funds within enterprise is the first most important obstacle to innovation,
followed by lack of external financing (65.1%), high cost of innovation ( 62.2%) and difficulty finding co-
operating partners (49.7%). Uncertain demand for innovative products is the last most important obstacle
(19.5%). Lack of qualified personnel (51.2%) is the first “not important” barrier to innovation with lack of funds
within enterprise (7.0%) being the least “not important” barrier to innovation whilst a little over a third (37.3%)
of the firms reveal that lack of information markets is the first “moderately important” barrier to innovation.
Lack of funds within enterprise is however revealed as being the least in both “not important” (7.0%) and
“moderately important” (13.9%) respectively.
Table 7: Barriers to innovation Variable Not important Moderately important Very important N
Lack of funds within enterprise 7.0% 13.9% 79.1% 201
Lack of external financing 15.4% 18.9% 65.7% 201
High costs of innovation 9.9% 27.9% 62.2% 201
Lack of qualified personnel 51.2% 17.4% 31.4% 201
Lack of information technology 33.8% 32.4% 33.8% 201
Lack of information markets 34.8% 37.3% 27.9% 201
Difficulty finding co-operating partners 23.9% 26.4% 49.7% 201
Market dominated by established firms 33.8% 34.3% 31.9% 201
Uncertain demand for innovative products 47.4% 33.1% 19.5% 190
2.5. Dynamic capabilities
Table 8 shows the dynamics of capabilities of the firms for innovation. Analysis of the mean, reveals that most
firms score high on the ability to transform knowledge (4.3) but score very low (average of 1.5) on identifying
and selecting knowledge. Firms performed moderately regarding the ability to acquire knowledge (4) and ability
to commercialize their products (3.7).
60
Table 8: Dynamic capabilities
Scale of Relationship
Identification &
selection
Acquisition of
knowledge Transformation Commercialisation
Completely disagree 31.6% 1.0% 0.5% 4.2%
Strongly disagree 22.6% 9.9% 0.5% 4.9%
Disagree 28.9% 10.9% 2.0% 12.7%
Neutral 3.7% 4.5% 5.0% 12.0%
Agree 7.9% 26.4% 55.7% 35.9%
Strongly agree 3.7% 30.9% 27.8% 21.8%
Completely agree 1.6% 16.4% 8.5% 8.5%
Total 100.0% 100.0% 100.0% 100.0%
Mean
Median
Std. deviation
1.5
1.0
1.48
4.0
4.0
1.59
4.3
4.0
8.77
3.7
4.0
1.49
N 190 201 201 142
Note: Scale of 7-point scale ranging from 1: completely disagree to 7 completely agree
2.6 Trust
Table 9 reports on the degree to which firms trust their partners and other organizations in their business
activities. The average computed from the 7-point- likert scale indicates that there is a relatively high level of
trust for the partners of the firms (4.4) whereas the trust for other organizations (3.5) records the least level of
trust. In the same manner, the level of trust for partners always frank and truthful (4.2) and trust for partners
stand by their word (4.1) are also recorded.
Table 9: Different dimensions of trust
Scale of Relationship Trusting Partners
Partners always frank & truthful
Partners stand by their word
Trust other organisations
Completely disagree 0.6% 0.6% 0.6% 1.8%
Strongly disagree 0.6% 0.6% 1.7% 2.9%
Disagree 1.1% 1.7% 3.5% 19.8%
Neutral 5.2% 5.2% 5.7% 18.0%
Agree 48.3% 60.9% 58.0% 40.1%
Strongly agree 36.8% 24.7% 25.9% 14.5%
Completely agree 7.4% 6.3% 4.6% 2.9%
Total 100.0% 100.0% 100.0% 100.0%
Mean
Median
Std. deviation
4.4
4.0
0.87
4.2
4.0
0.84
4.1
4.0
0.93
3.5
4.0
1.23
N 174 174 174 172
61
2.7 Relationship with customers and institutional actors
Table 10 gives a description of the firms’ relationship with different actors. The firms’ level of relationship is
very high for customers and institutional actors (4.9), followed by suppliers (4.8) and institutional actors (3.8).
Their level of relationship with competitors is the lowest (3.4). However, their relationship with competitors
exhibits the highest variability (1.26) as compared to their relationship with suppliers (0.73).
Table 10: Relationship with different actors
Scale of Relationship Customers &
Institutional actors Suppliers Competitors Institutional
Actors
Completely disagree 1.0% 0.0% 1.1% 1.1%
Strongly disagree 0.0% 0.0% 4.7% 1.1%
Disagree 0.0% 0.5% 21.5% 4.8%
Neutral 2.6% 3.5% 16.2% 21.4%
Agree 20.8% 23.7% 38.7% 56.1%
Strongly agree 54.3% 58.1% 14.1% 11.8%
Completely agree 21.3% 14.2% 3.7% 3.7%
Total 100.0% 100.0% 100.0% 100.0%
Mean
Median
Std. deviation
4.9
5.0
0.83
4.8
5.0
0.73
3.4
4.0
1.26
3.8
4.0
0.95
N 197 198 191 198
Note: Scale of 7-point scale ranging from 1: completely disagree to 7 completely agree
62
63
Annex 3: EIP-LIC evidence addressing the original DFID research questions
By William Baah-Boateng and Michael Danquah (University of Ghana)
Annex 3 seeks to answer several questions relating to firm-level and regional-level factors that drive innovation
in Kenya by means of simple regressions. In addition, we examine how public-private sector linkages influence
the development of innovations. We also investigate the significance of factors that firms perceive as critical
barriers to the process of innovation and the diffusion of technology.
Annex 3 seeks to answer some questions relating to firm and regional level factors that drive innovation in Ghana
using simple regression. We also investigate how public- private sector linkages influence the development of
innovation activities. Finally, we examine the importance of factors that firms perceive as critical barriers to the
process of innovation and the diffusion of technology.
Firm characteristics, regional factors and innovation activities
This section addresses the following research question: “What firm-level and regional-level factors including
size, ownership, market orientation, labour skills availability, gender, firm location, ties between public/private
sector, role of intermediaries etc. hinder or foster the engagement of firms in innovative activities?” Specifically,
we seek to examine the firm-level and regional-level factors that are related to firms engaging in innovation
activities.
As indicated, firm-level factors include age, size, percentage of foreign ownership, percentage of fulltime
employees with high school education, and access to a line of credit or loan from a financial institution. Regional-
factors comprise location of the firm, regional level of knowledge creation, and RIQ. As done in the Kenya
country report, we use a clustered robust standard errors Logit model to examine whether these factors foster or
hinder innovation activities such as internal R&D, external R&D, formal training, and purchase of new
equipment for the development of innovations.
Table 11 on the next page presents the estimation results. Among the firm-level factors, the age of the firm is
only significant and positive in the internal R&D model. This implies that older firms have a higher likelihood
of engaging in internal R&D. Also, the coefficient for the size of the firm is significant and positive in all
innovative activities with the exception of external R&D. This suggests that larger firms have a higher probability
of engaging in internal R&D, formal training and procuring new equipment. The coefficient for foreign
ownership is positive and significant for external R&D, indicating that a larger fraction of foreign owners
increases the likelihood of engaging in external R&D. We find that firm level factors such as education and
access to credit do not significantly influence all the innovative activities.
Regarding the regional-level factors, the coefficient for the Accra-Tema area is positive and significant. This
indicates that, due to the degree of urbanization in Accra-Tema, firms, which are located within Accra-Tema are
more likely to engage in all the innovation activities. Also, the coefficient for knowledge creation is positive
and significant in all innovation activities except external R&D where the coefficient yields an insignificant
outcome. This observation connotes a positive relationship between knowledge creation and internal R&D,
formal training and new equipment but an inverse relationship with external R&D. The coefficient on RIQ is
negative and significant in only the internal R&D and the new equipment models. This shows that a high degree
of RIQ reduces the risk associated with entering into contracts for innovative activities such as internal R&D
and new equipment. In other words, firms in Ghana are more likely to engage independent skilled labour for
innovative activities like internal R&D on contractual basis as opposed to offering their employees training for
the development of innovations accruing from internal R&D.
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Table 11: Logistic regression results of innovation activities (n = 502)
Variable Internal R&D External R&D Formal Training New equipment
Firm-level factors
Age 0.2781** -0.3987 0.0283 0.0912
Firm size (log) 0.4564*** 0.1849 0.5885*** 0.4399***
Foreign ownership 0.0003 0.0163** 0.0003 -0.0003
Education 0.0048 0.0140 -0.0026 0.0013
Access to credit 0.4036 0.6420 0.2719 0.3039
Regional level factors
Accra-Tema 0.6540** 0.9217*** 0.5252** 0.7832***
Knowledge creation 0.1771** -0.0039 0.1629*** 0.1981***
RIQ -0.3385** -0.3245 -0.2200 -0.2828**
Constant -4.3346*** -3.6266*** -2.7913*** -2.0076***
* p<0.10 **p<0.05 ***p<0.01
Commercialization of innovative output
In this section we answer the following research question: “Which firm-level and regional-level factors hinder
or foster the extent to which firms successfully commercialize the outcomes of their innovation activities?” We
examine the relationship between firm-level and regional-level factors, and commercialization of innovative
output. Since the responses were in the form of Likert scale (that is completely disagree, strongly disagree,
disagree, neutral, agree, strongly agree, completely agree) the relationship is examined by an ordered Logit
regression method.
The results of the estimation are presented in Table 12. With respect to the firm-level factors, the age of the firm,
the size of the firm and the percentage of fulltime employees with high school education all have their
coefficients being positive and significant. This implies that older firms are more likely to successfully
commercialize their innovative activities. Moreover, larger firms have a higher likelihood of commercializing
their innovative activities. Firms with a large percentage of fulltime employees having high school education are
also more likely to commercialize their innovative activities.
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Table 12: Ordered Logit regression results (n=125)
Variable Dep. Variable: Commercialization
Coefficients Robust standard error
Firm-level factors
Age 0.1256* (0.0658)
Firm size 0.1400* (0.0734)
Foreign ownership 0.0034 (0.0032)
Education 0.0061** (0.0029)
Access to credit 0.0110 (0.2375)
Regional level factors
Accra-Tema 0.2841 (0.2409)
Knowledge acquisition 0.5057*** (0.1580)
RIQ 0.1332 (0.1239)
* p<0.10 **p<0.05 ***p<0.01
Turning attention to the regional-level factors, only the coefficient of knowledge acquisition is significant and it
is also positive. This suggests that as firms develop their internal R&D, they are able to develop their products
with the aim of capturing value from innovative output. In this case these firms are able and more likely to
successfully commercialize their innovative activities. The coefficient on Accra- Tema is statistically
insignificant. This is a bit surprising as one would largely expect that firms in urban areas like Accra- Tema that
have access to large markets would be more likely to commercialize innovative output effectively. Nonetheless,
this may indicate that firms in this enclave face intense competition that may stifle their efforts to commercialize.
In-house innovation, collaborative innovation, and technology acquisition
This section addresses the following research question: “What is the impact of in-house innovation activities
versus collaborative innovation activities or technology acquisition activities on the innovation performance of
firms in developing countries?” In-house innovation activities relates to a firm developing innovative products
or services entirely on its own. Collaborative innovation activities on the other hand indicate that firms
cooperated with other external actors including firms, universities/research institutes, private consulting
companies, individuals or government enterprises to develop their innovative output. Technology acquisition on
the other hand relates to firms acquiring foreign technology including equipment and machinery for their
production processes. Innovation performance is measured as the number of innovative products/services
introduced by the firm.
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Table 13: Ordinary Least Square (OLS) regression results innovation output (n=227)
Variable Dep. Variable: Innovation output
Coefficients Robust standard error
Firm-level factors
Age -0.0145 (0.0394)
Firm size -0.0590* (0.0335)
Foreign ownership 0.0013 (0.0011)
Education 0.0006 (0.0010)
Access to credit 0.0106 (0.0714)
Regional level factors
Accra-Tema -0.0592 (0.0749)
Knowledge acquisition 0.0015 (0.0183)
RIQ -0.0054 (0.0398)
Innovation activities (Reference dummy – foreign technology acquisition)
In-house activities 0.1220* (0.0700)
Collaborative activities 0.2860*** (0.0915)
Constant 1.2401*** (0.1791)
* p<0.10 **p<0.05 ***p<0.01
Table 13 reports on the results of the estimations. None of the regional level factors have any significant
influence on the innovation output of firms. Moreover, coefficient on the firm size is negative and significant
suggesting that there is an inverse relationship between the size of the firm and innovation output. Nonetheless,
firms that engage in in-house innovative activities and collaborative innovative activities tend to have a higher
innovative output compared to those who procure foreign technology. This portends the importance of
intensifying collaborative and in-house research and innovative activities among firms and universities/research
institutes, private consulting companies among others in Ghana.
Economic spillovers and innovation
This section answers the following research question: “What is the role of economic spillovers within clusters
of firms in fostering economic growth and innovation?” Table 14 presents the estimates of the effects of
spillovers generated by cooperative relationships with customers and suppliers on innovative performance.
Cooperative relationships relate to the number of firms reporting that the main important source of information
or idea for any innovative activity in their firms was from customers or suppliers. In addition we report the
spillovers arising from cooperating with other firms, universities/research institutes, and consultancy firms in
developing main innovative products. Innovation performance is a binary variable, which indicates whether a
firm introduced any new product or service.
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The coefficient for cooperating with other firms and private consulting companies are positive and significant.
This shows that spillovers emanating from collaborating with other firms are very crucial for Ghana.
Furthermore, the firms’ association with private consultancies proves to be very beneficial. This may be due to
the strong technical know-how, capabilities and expertise of the private consulting firms. This finding reinforces
the earlier point about intensifying collaboration among firms, private consultancies and research institutes etc.
As shown, cooperative relationships- customer and supplier are not meaningful in Ghana. This indicates that
vertical spillovers are less important compared to horizontal spillovers- from firms and consultants in Ghana.
Table 14: Logistic regression results of Innovation & Cooperation relation (n=543)
Variable Dep. Variable: Innovation
Coefficients Robust standard error
Firm-level factors
Age 0.1931 (0.1294)
Firm size 0.2756** (0.1158)
Foreign ownership -0.0005 (0.0036)
Education 0.0064* (0.0034)
Access to credit 0.6353** (0.2750)
Regional level factors
Accra-Tema 0.0090 (0.2686)
Knowledge acquisition 0.6433*** (0.1205)
RIQ -0.3339** (0.1485)
Cooperative relationship
Customer -0.6781 (0.5963)
Supplier -0.0437 (0.0396)
Cooperation for innovation
Firms 0.7891* (0.4567)
Private consulting companies 0.0421** (0.0206)
Universities/research institutions 0.2984 (0.1917)
Constant -1.7963*** (0.5498)
* p<0.10 **p<0.05 ***p<0.01
Barriers to innovation and technology diffusion
This section addresses the following research question: “What are the most critical barriers to the process of
innovation and the diffusion of technology in low income country setting?” Reports of the results of our
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estimation of the relation between barriers of innovation, and technology diffusion is reported in Table 15.
Innovation performance is measured as the number of innovative output and technology diffusion relates to firms
adapting or reproducing a product or service already sold by another firm.
Table 15: OLS of innovation output & logistic regression results of technology diffusion (n=227)
Variable Innovation output (OLS) Technology diffusion (logistic)
Coefficient Std. error Coefficient Std. error
Firm-level factors
Age -0.0229 (0.0412) -0.0595 (0.1945)
Firm size -0.0538 (0.0348) 0.1320 (0.1450)
Foreign ownership 0.0010 (0.0012) 0.0110*** (0.0040)
Education 0.0009 (0.0011) 0.0147** (0.0058)
Access to credit 0.0143 (0.0749) -0.2125 (0.3666)
Regional level factors
Accra-Tema -0.0894 (0.0787) -0.3608 (0.3855)
Knowledge acquisition -0.0291 (0.0544) 0.3580* (0.1968)
RIQ -0.0097 (0.0415) 0.1513 (0.2057)
Barriers to innovation
Lack of funds within enterprise 0.1207 (0.2381) -1.7858 (1.2774)
Lack of external financing -0.2314 (0.2059) -0.3680 (1.1078)
High cost of innovation 0.3131 (0.2569) -0.8622 (0.8710)
Lack of qualified personnel 0.1100 (0.1417) 0.8702 (1.0225)
Lack of information technology -0.3510** (0.1563) -2.5047** (1.1308)
Lack of information market 0.1939 (0.1451) -0.0481 (0.8263)
Difficulty finding coop partners -0.0763 (0.1611) 2.5086** (1.1602)
Market dominated by est. firms -0.0848 (0.1391) -0.6913 (0.7652)
Uncertain demand for innov prod -0.0354 (0.1530) 1.3035 (0.8579)
No need due to prior innovation 0.2378* (0.1325) -1.2886 (0.8240)
Constant 1.3620*** (0.1837) -3.1427*** (0.7966)
* p<0.10 **p<0.05 ***p<0.01
Our regression results show that lack of information technology remains the most critical barriers to both the
innovation process and technology diffusion among firms. This results amply show the importance of
information technology in the innovation process and its diffusion. The result may reflect the general lack of
adequate infrastructure in information and communication technology in Ghana. The other factors such as lack
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of external financing, difficulty finding cooperating partners, market denominated by established firms and
uncertain demand for innovative products are statistically insignificant.
Linkages with external agents and innovation
In this section, we address the following research questions: “What types of links between public/private sector,
universities, government, NGOs and the private sector are more conducive to innovation activity? What is the
role of universities for facilitating/propagating innovation in LICs? What is the role of the private sector?” In
some instances, firms collaborate with external agents for realizing the development of innovative products or
services. External agents comprise domestic and foreign firms, domestic and foreign academic and research
institutions, private consulting company/individuals, and the government.
Table 16 reports on the results of our estimation. The results for Ghana show that firms collaborating with other
firms have a higher likelihood of engaging in internal R&D, formal training and procuring new equipment.
Nevertheless, the firms’ collaboration with academic and research institutions; and private consultants does not
have any significant impact on their innovation activities. This may indicate the weak linkages that exist between
academia, research institutions and firms in Ghana. None of the linkages have significant influence on external
R&D.
Table 16: Logistic regression of innovation activities and linkages (n=500)
Variable Internal R&D External R&D Formal Training New equipment
Firm-level factors
Age 0.2919** -0.4027 0.0336 0.0973
Firm size (log) 0.4438*** 0.1977 0.5980*** 0.4524***
Foreign ownership 0.0014 0.0162** 0.0012 0.0001
Education 0.0043 0.0141 -0.0030 0.0014
Access to credit 0.3843 0.6234 0.2645 0.3093
Regional level factors
Accra-Tema 0.6281** 0.9239*** 0.4875* 0.7494***
Knowledge creation 0.1909*** 0.0039 0.1748*** 0.2147***
RIQ -0.3432** -0.3492 -0.2354* -0.2906**
Linkages
Academic/research inst. 1.0343 0.0459 0.1272 -1.4024
Firms 1.4427** 0.7076 1.5592*** 1.5946***
Private consultants 0.5393 0.0043 1.2453 0.9365
Constant -4.4650*** -3.6911*** -2.9779*** -2.0076***
* p<0.10 **p<0.05 ***p<0.01
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The role of demand side versus supply side policies
This section addresses the following research questions: “What is the role of the demand side versus the supply
side policies (e.g. AMC, tax credit on R&D, technoparks, export processing zones, trade preferences). In what
sectors/contexts can they be applied? What are the lessons? Governmental support for innovation activities is
reported by few firms in the sample. Specifically, in the sample several firms report receiving funding from
government agencies/departments for innovation. Additionally, some firms report receiving non-financial
support from government for innovation related activities. Non-financial support includes training in the use of
innovation equipment, assistance in research and product development, and assistance and training for marketing
innovations.
Table 17 presents our estimation results for the relation between the two forms of government support and
innovation performance. The coefficients on the financial support and non-financial support from government
agencies/departments are not statistically significant. This implies that support in any form from government
does not have any discernible impact on the innovation performance of firms in Ghana. This may be due to the
quantum, targeting and sustainability of many of the support schemes emanating from government of Ghana.
Table 17: Logistic regression results of innovation & support (n=503)
Variable Dep. Variable: Innovation
Coefficients Robust standard error
Firm-level factors
Age -0.0110 (0.1239)
Firm size 0.1012 (0.1222)
Foreign ownership -0.0067* (0.0035)
Education 0.0045 (0.0036)
Access to credit 0.6007** (0.2794)
Regional level factors
Accra-Tema 0.0088 (0.2641)
Knowledge acquisition 0.0609 (0.0658)
RIQ -0.4924*** (0.1517)
Non-financial support -1.4966 (0.9436)
Financial support -0.1395 (0.9879)
Constant -0.9366* (0.5498)
* p<0.10 **p<0.05 ***p<0.01
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Gender diversity and innovation
Finally, this section addresses the following question: “What is the role of gender diversity in fostering
innovation performance for firms in developing countries?” Table 18 provides an overview of how gender
diversity impacts innovation performance which is measured as the introduction of new products or services.
Gender diversity relates to female participation in the ownership of the firm, top management and overall
workforce. Innovation is measured as whether or not a firm introduced new products or services.
Table 18: Logistic regression results of innovation & support (n=548)
Variable Dep. Variable: Innovation
Coefficients Robust standard error
Firm-level factors
Age 0.2202** (0.1032)
Firm size 0.3361*** (0.0991)
Foreign ownership 0.0012 (0.0029)
Education 0.0050* (0.0027)
Access to credit 0.5730** (0.2257)
Regional level factors
Accra-Tema 0.4959** (0.2108)
Knowledge acquisition 0.1524** (0.0606)
RIQ -0.0428 (0.1162)
Gender diversity
Female ownership 0.2096 (0.2433)
Female manager 0.4127 (0.3098)
Female workforce participation -0.2147 (0.4235)
Constant -1.3456*** (0.4263)
* p<0.10 **p<0.05 ***p<0.01
Table 18 reports the results of our estimation. None of the coefficients of the measures of gender diversity is
significant. This implies that female participation in the ownership of the firm top management and overall
workforce does not play any critical role in the innovative performance of firms. This clearly may be due to the
very low participation rates of females. Female participation in the top management for instance may be very
low partly due to the gender imbalance in top management with women been few relative to their male
counterparts. This may be attributed to the dominance of male ownership of firms compared to females.
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Summary and Conclusion
This country report on Ghana provides an in-depth firm level specific description on sales and exports, supplies
and imports, innovation, dynamic capabilities, trust, relationship with customers and institutional actors. In
addition, the country reports also attempt to answer the key DFID research questions. Some of these questions
include how public-private sector linkages influence the development of innovations, the role of economic
spillovers within clusters of firms in fostering economic growth and innovation, and the significance of factors
that firms perceive as critical barriers to the process of innovation and diffusion of technology in Ghana among
others. The data for the description is derived from the Ghana 2013 Enterprise Survey (ES), the Ghana 2013
Innovation Follow-up Survey (IFS) and the Ghana Manufacturing Innovation Capability Survey (ICS). Keen
interest was placed on sales and export, innovation activities, trust, and dynamic capacity of the firms among
others.
The description and analysis of the datasets shows that the retail subsector dominates the distribution of
subsectors across all the sectors. The firms in the sample recorded a negative growth in turnover between 2009
and 2012 period. Majority of the firms employed around 20 persons indicating why a large percentage of firms
are small in Ghana. It is observed that many of the firms are not involved in direct and or indirect exports. Sales
from exports accounts for a small proportion of the firm revenue. Largely firms in Ghana procure their material
inputs from both domestic and foreign sources.
With regards to innovation, the analysis of the IFS and ICS indicate that product and process innovation was
taking place at the firm level. On one hand, apart from the manufacturing sector, all the other sectors were
prominently engaged in more product innovation than process innovation. On the other hand, the manufacturing
sector had the highest rate of process innovation. Many of the firms indicated that the primary goal for
undertaking process innovation is to improve upon the quality of their products and services whilst with regards
to product innovation, the main goal was the desire to open up to new markets or increase market share. In
order to boost innovation, most of the firms procured new equipment. The firms alluded that customer feedback
was the most important source of information for innovation. The firms mentioned that the lack of funds within
enterprise is the first most important obstacle to innovation. Also there is a relatively high level of trust for the
partners of the firms than for other organizations.
With respect to the regression results for the DFID questions, we find that older firms have a higher likelihood
of engaging in internal R&D whilst larger firms have a higher probability of engaging in internal R&D, formal
training and procuring new equipments. Also, a larger percentage of foreign owners increases the likelihood of
engaging in external R&D. The degree of urbanization in Accra- Tema, allows firms located within Accra-Tema
to actively engage in all the innovation activities. Knowledge creation at the regional level has a positive
relationship with internal R&D, formal training and new equipment but an inverse relationship external R&D.
The results also shows that a high degree of RIQ reduces the risk associated with entering into contracts for
innovative activities such as internal R&D and new equipments.
The regression estimates also display that older firms, larger firms as well as firms with a large percentage of
fulltime employees having high school education are more likely to successfully commercialize their innovative
activities. Firms in Ghana that engage in in-house innovative activities and collaborative innovative activities
tend to have a higher innovative output compared to those who procure foreign technology, signifying the
importance of collaborative and in-house research and innovative activities among firms and
universities/research institutes, private consulting companies among others in Ghana. Furthermore, firms’
association with private consultancies proves to be very valuable, indicating that spillovers emanating from
collaborating with other firms is very crucial for firms in Ghana.
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Following from the DFID questions, our findings with respect to the barriers to innovation and technology
diffusion show that lack of information technology remains the most critical barriers to both the innovation
process and technology diffusion among firms. With regards to firms linkages with external agents and
innovation, the results from Ghana show that firms collaborating with other firms have a higher likelihood of
engaging in internal R&D, formal training and procuring new equipment. The weak linkages that exist between
academia, research institutions and firms in Ghana is evident from our results. Also, financial support and non-
financial support from government agencies/departments does not have any discernible impact on the innovation
performance of firms in Ghana. Finally, female participation in the ownership of the firm, top management and
overall workforce do not play any critical role in the innovative performance of firms. This clearly may be as a
result of the very low participation rates of females in the top management of firms as well as the dominance of
male ownership of firms compared to females in Ghana.
The analysis contained in this country report delivers a deeper insights and understanding of the context of firms
and innovation in Ghana.