Determinants of investment and organizational performance in Africa

Citation

Kuada, J. (2015), "Determinants of investment and organizational performance in Africa", African Journal of Economic and Management Studies, Vol. 6 No. 3. https://doi.org/10.1108/AJEMS-07-2015-0083

Determinants of investment and organizational performance in Africa

Article Type: Editorial From: African Journal of Economic and Management Studies, Volume 6, Issue 3.

Demographic studies indicate that Africa's population is likely to grow to two billion people and account for 20 per cent of the world's population by 2050 (United Nations Population Division, 2012). This forecast has renewed the debate on the relationship between population growth and economic development and its implications for poverty alleviation. The economics literature draws attention to many positive effects of population growth. These include the availability of a young and dynamic labour force, growth in consumer market segment, economies of scale, and new business opportunities (Simon, 1986). But rapidly growing populations also have fewer resources per person, less physical capital per worker, more dependents, greater needs for new social infrastructure and greater labour management challenges. It has also been argued that as business opportunities expand in the wake of population growth, managers of public institutions as well as private firms need to carefully consider the extent to which current economic and management models can adequately guide the decisions that they make to address these challenges. These general observations have informed studies that have been included in this volume of AJEMS.

Simplice Asongu uses vector autoregressive models to analyse the long-term effects of population growth on aggregate investment in five African countries – Swaziland, Ivory Coast, Zambia, the Republic of Congo, and Sudan. The study provides an insightful analysis of the dynamic interplay between public, private, domestic, and foreign investments in these countries as their populations change. The results suggest that (granting that current investment policies are maintained) population growth will decrease foreign and public investments in Ivory Coast; increase public and private investments in Swaziland; increase domestic investment in Zambia; reduce private investment in the Republic of Congo; and improve domestic investment in Sudan. He observes that private and foreign investment climates in these countries (just as in several other African countries) may need to change if the negative long-term consequences of population growth on investment are to be mitigated.

At the micro level, changes in aggregate investments depend partly on the manner in which they impact corporate performance. It has been argued that investments in new technologies result in the transfer of new knowledge to firms and raise the productivity of their workers, and therefore impact performance positively (Sutton, 1998). It has also been suggested by some scholars that many African firms do not possess sufficient internal financial resources to support their investment requirements and therefore need to depend on external sources (Atieno, 2009). But since external investors favour companies that are perceived to be properly governed, effective corporate governance can facilitate access to resources and have positive impact on performance.

Olufemi Bodunde Obembe and Rosemary Olufunmilayo Soetan's study has been guided by the above observations. They argue that competition must complement corporate governance mechanisms in improving the effective and efficient management of firms. They therefore analysed the interaction effects of competition, corporate governance and corporate performance in Nigeria, using a panel data of 76 listed non-financial firms. The results showed that competition had a positive and significant impact on productivity and growth of the firms.

Another important determinant of firm performance and investment is the manner in which customers respond to the products and services they offer (Gursoy and Swanger, 2007). Satisfied customers exhibit high levels of loyalty and communicate more positively about their suppliers (Chi and Gursoy, 2009). Past studies have also shown that in competitive market situations, firms find their customers defecting to their competitors as a result of poor service delivery. It is therefore assumed that increased competition will generally lead to increased service quality levels (Olivares and Cachon, 2009).

Empirical investigations into consumers' service quality perceptions in the industrialized world have been based on Parasuraman et al.'s (1985) service quality (SERVQUAL) scale. Ernest Emeka Izogo has applied this scale to measure how Nigerian customers perceive the quality of the services that automotive repair companies offer. The results showed that the SERVQUAL scale is a valid and reliable measure of service quality in Africa. It also showed that customers' perceived level of service quality of the automotive repair service sector is rather low. The author therefore advised managers operating within the sector to constantly update the skills and knowledge of their employees in order to enhance their capacity to rectify faults as quickly as possible.

Previous business management research has indicated that organizational performance depends, to a considerable extent, on employees' commitment (Meyer et al., 2002). It has also been suggested that employees may show commitment concurrently to organizations with divergent goals and interests, e.g. labour organizations and private companies. However, little has been known about factors that influence such multiple commitments and the human resource challenges that they may entail. Edward Osei Akoto and Claire Allison Stammerjohan's paper makes some contribution to filling this knowledge gap. The study sought to examine whether commitment constructs found in the economics literature are valid in analysing African employees' relationships with their organizations and institutions. Furthermore, the authors examined the extent to which health care workers in Ghana experienced dual commitment to the employing organization and their professional association. The results confirm the validity of the construct within an African labour and organizational setting. They further suggest that the relatively high level of job insecurity in Ghana compels employees to show commitment to their organization even in circumstances where their feelings towards these organizations may not be very positive. In other words continuance commitment is not always an evidence of affective commitment.

Francis Asah, Olawale Olufunso Fatoki and Ellen Rungani's paper addresses the impact of motivations, personal values, and management skills on the performance of SMEs in South Africa. Values have been defined in the social science literature as guiding principles regarding how individuals ought to behave. It has also been argued that there are potential conflicts between values that individuals acquire in different social settings and these conflicts may impact their work behaviour negatively. Organizational performance therefore depends partly on how managers succeed in helping employees align their potentially divergent values with those enshrined in their work organizations (Maynard-Moody and Musheno, 2003). The results of Asah et al.'s study showed that managerial skills constitute the most important of the three predictors of SME performance examined. For this reason they recommended that managers of small businesses should take advantage of training avenues in the country in order to enhance their workers' skills.

John N. Horace's research commentary takes up the issue of oil revenue management which has become one of the major challenges of those African governments that have recently joined the oil exporting group of nations. Previous observers have suggested that African governments must ensure transparency throughout the value chain of their extractive industries and implement pro-poor projects at the site level in order to improve the positive social and economic impact of the sector (Appiah-Adu, 2013). Horace's discussions are in line with this perspective. He argues further that the best model for these African countries is to separate the policy, commercial and regulatory bodies that govern the oil resources.

The discussions in these papers provide additional insights into the role of human resource management in Africa's development process. It is generally acknowledged that when nations empower their people and enhance their contributory capacities, they are able to attain sustainable economic development. Building on the evidence from these studies, national development policies need to integrate firm-level human resource management considerations into their overall policy frameworks. Efforts must also be made to help align employees' personal values to those of their organizations, and enhance their commitment as well as service delivery capabilities. These considerations become extra important in the light of the rapid population growth in Africa and the challenges that this creates for economic growth. The studies also draw attention to research gaps that should attract the attention of future researchers in the field.

John Kuada

References

Appiah-Adu, K. (2013), Governance of the Petroleum Sector in an Emerging Developing Economy, Ashgate, London

Atieno, R. (2009), “Linkages, access to finance and the performance of small-scale enterprises in Kenya”, Journal of Accounting and Business Research, Vol. 3 No. 1, pp. 33-48

Chi, C.G. and Gursoy, D. (2009), “Employee satisfaction, customer satisfaction, and financial performance: an empirical examination”, International Journal of Hospitality Management, Vol. 28 No. 2, pp. 245-253

Gursoy, D. and Swanger, N. (2007), “Performance enhancing internal strategic factors: impacts on financial success”, International Journal of Hospitality Management, Vol. 26 No. 1, pp. 213-227

Maynard-Moody, S. and Musheno, M. (2003), Cops, Teachers, Counselors: Stories from the front line of Public Service, UMI Research Press, Ann Arbor, MI

Meyer, J.P., Stanley, D.J., Herscovitch, L. and Topolnytsky, L. (2002), “Affective, continuance, and normative commitment to the organization: a meta-analysis of antecedents, correlates, and consequences”, Journal of Vocational Behavior, Vol. 61 No. 1, pp. 20-52

Olivares, M. and Cachon, G.P. (2009), “Competing retailers and inventory: an empirical investigation of general motors' dealerships in Isolated U.S. markets”, Management Science, Vol. 55 No. 9 pp. 1586-1604

Parasuraman, A., Zeithaml, V.A. and Berry, L.L. (1985), “A conceptual model of service quality and its implications for future research”, Journal of Marketing, Vol. 49 No. 4, pp. 41-50

Simon, J.L. (1986), Theory of Population and Economic Growth, Basil, Oxford

Sutton, J. (1998), Market Structure and Technology, MIT Press, Cambridge, MA

United Nations (UN) Population Division (2012), World Prospects, 2011 rev., Department of Economic and Social Affairs, Population Division, United Nations, New York, NY