An Analysis of Factors that Determine firm Survival during Economic Crises: The Case of Zimbabwe Manufacturing Firms
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Date
2017-03-05
Authors
Makochekanwa, Albert
Journal Title
Journal ISSN
Volume Title
Publisher
African Economic Research consortium
Abstract
The study analysed the various factors which contributed to the survival of manufacturing
firms in Zimbabwe during the country’s crisis of the 1990s and the one between 2000
and 2008. The study employed both descriptive statistics using firm level data from
World Bank Enterprise Survey, and a logistic econometric model. The findings from
descriptive analysis indicate that survival of manufacturing firms in the 1990s was,
among others, determined by such factors as access to finance (whether from bank loans,
informal sources, or a company’s retained profits) to fund its operations including input
procurement. Secondly, exportation was an important determinant which positively
enhanced a given firm’s survival. Third, availability of electricity power to support
manufacturing activities was a positive enhancement for firm survival.
Findings from the 2011survey shows that the problem of foreign currency shortages
were so severe that some firms were forced to exit the manufacturing business as they
could not be able to source some of their vital inputs from the international market.
Secondly, given that by 2011 corruption was a major problem for manufacturing firms,
this implies that these gifts (bribes) increased the operational costs of these firms, and
as such reduced their profit margins, thus negatively affecting their manufacturing
business. Third, a number of firms interviewed said that they had been incurring losses
on an annual basis due to electricity outages. At national level, firms lost around 6.9%
of their total annual sales due to electricity power blackouts. Lastly, access to finance,
especially from formal sources like banks, was also a major challenge as most banks
were not providing loans to companies due to severe liquidity constraints.
Turning to the exit (survival) logistic model which was estimated using the survey
from 2011, the results showed availability of credit was an important factor affecting
survival of manufacturing firms in the Zimbabwean context given that most firms’ balance
sheets and net profits were rendered valueless, and as such firms found themselves
looking for loans to finance working capital or make new investments that would ensure
continuity and growth. The study also found that competition from both formal and
informal competitors increased the probability of firms exiting the manufacturing sector.
With regards to foreign ownership (or the extent to which a firm is a subsidiary of a
multinational corporation), results indicate that foreign firms’ subsidiaries in Zimbabwe
were more likely to stay in the economy comparable to domestic firms during economic
crisis. The square of firm size (size2) was found to be negative and significant, implying
that very large firms were assumed to be more established and expected to weather the
common problems that bedevil small firms, and as such, they (very large firms) are less
likely to exit. The impact of older firm (age2) on the probability of exit was negative
and significant. As such, very old firms were assumed to be established and have more
years of experience in conducting their line of business, thus less likely to exit from
manufacturing activities.