Resource information
Firms in Africa report "regulatory
and economic policy uncertainty" as a top constraint to
their growth. This paper argues that often firms in Africa
do not cope with policy rules, rather they face deals:
firm-specific policy actions that can be influenced by firm
actions (such as bribes) and characteristics (such as
political connections). Using Enterprise Survey data, the
paper demonstrates huge variability in reported policy
actions across firms notionally facing the same policy. The
within-country dispersion in firm-specific policy actions is
larger than the cross-national differences in average
policy. The analysis shows that variability in this policy
implementation uncertainty within location-sector-size cells
is correlated with firm growth rates. These measures of
implementation variability are more strongly related to
lower firm employment growth than are measures of
"average" policy action. The paper shows that the
de jure measures such as Doing Business indicators are
virtually uncorrelated with ex-post firm-level responses,
further evidence that deals rather than rules prevail in
Africa. Strikingly, the gap between de jure and de facto
conditions grows with the formal regulatory burden. The
evidence also shows more burdensome processes open up more
space for making deals; firms may not incur the official
costs of compliance, but they still pay to avoid them.
Finally, measures of institutional capacity and better
governance are closely associated with perceived consistency
in implementation.
