An Analysis of Factors that Determine firm Survival during Economic Crises: The Case of Zimbabwe Manufacturing Firms
| dc.contributor.author | Makochekanwa, Albert | |
| dc.date.accessioned | 2020-11-16T15:52:37Z | |
| dc.date.available | 2020-11-16T15:52:37Z | |
| dc.date.issued | 2017-03-05 | |
| dc.description.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. | en_US |
| dc.identifier.isbn | 978-9966-61-022-5 | |
| dc.identifier.uri | https://publication.aercafricalibrary.org/handle/123456789/1163 | |
| dc.publisher | African Economic Research consortium | en_US |
| dc.relation.ispartofseries | Research Paper 332;RP332 | |
| dc.title | An Analysis of Factors that Determine firm Survival during Economic Crises: The Case of Zimbabwe Manufacturing Firms | en_US |