Business Environment and Firm performance: The Case of
Retailing Firms in Cameroon
Pierre E Nguimkeu
Andrew Young School of Policy Studies - Georgia State University, 14
Marietta Street NW, Atlanta, GA 30303, USA
[email protected]
October 2013
Abstract
This paper examines the impact of business environment on the productivity of
retail firms in Cameroon, which represent more than 50% of all firms. Using data
from the 2009 Enterprise Surveys an overview of retail activities allows to identify
the main factors characterizing the environment in which firms operate, i.e. access
to credit, regulatory burden, illicit trade, administrative delays, infrastructure and
quality of labour. A Structural econometric analysis is used to quantify the impact
of these factors over firm performance. Results are used to suggest policy reforms
that would improve the business climate and enhance firms’ productivity.
Keywords: Cameroon, Retail trade, Business climate, Productivity, Econometric analysis,
Maximum Likelihood, Bootstrap.
JEL Classification: C31, C35, C51, D73, O14, O17, L25, L26, L81.
1 1
Introduction
It is well documented that trade is an important channel for growth and
development; see e.g., Balassa (1998), Berg and Krueger (2003). However,
this growth channel can only be effective so long as the necessary economic
and institutional conditions in the domestic market are fulfilled (Winters et al.
2004). Unfortunately, the domestic trade sector in Africa is dominated by the
informal sector and suffers from several dysfunctional ailments (Taiwo and
Moyo 2011). The case of Cameroon is particularly salient because domestic
trade firms represent an impressive share of nearly 52 % of all firms and a
workforce of more than 40 % of the service sector jobs, yet produce only less
than 18% of the country’s GDP (INS 2009). A central ground for the
underperformance of this activity can be found in the nature of the business
environment, sometimes also referred to as the investment climate (Stern,
2002).
The purpose of this paper is therefore to analyze and quantify the impact of
business environment on firm performance, with a focus on retail firms in
Cameroon, in order to find specific solutions that could allow firms to be
more productive and competitive both internally and externally. Using data
from the 2009 Enterprise surveys conducted by the World Bank an overview
of the retail trade sector allows to identify the main factors characterizing the
environment in which firms operate. The analysis identifies several factors
that negatively affect the well functioning of this activity in Cameroon. The
main barriers identified are taxation, illicit trade, lack of infrastructure, lack
of access to credit, administrative delays and incompetence of labour. A
comparison of the domestic trade indicators of Cameroon with other African
countries and the rest of the world shows that in several dimensions, such as
the quality of transport used to facilitate the circulation of goods and services,
the speed of administrative procedures related to import and export, access to
bank loans to pre-finance the purchase of goods, and training opportunities
for workers, Cameroon is lagging.
A Structural econometric analysis of the performance of retail firms is
conducted by measuring the impact of each of these business environment
factors on the gross margins of traders. For this purpose, we estimate the
production function of firms using a regression model with multiplicative
heteroskedasticity, and the method of quasi-maximum likelihood. The
bootstrap method is applied to estimate standard deviations and test
parameters’ statistical significance. The estimated model also serves as a
basis to evaluate the role of the business structure and market characteristics
over the productivity of retail businesses. The results clearly show that the
above-mentioned business climate factors create significant shortfalls in the
annual gross margins of domestic traders ranging from 4.94 million CFA
2 francs for the lack of infrastructure, to 9.72 million CFA francs for the lack of
competence of the workforce in a formal retail enterprise with average
characteristics. On the other hand, the qualifications of the entrepreneur, the
business structure and the adoption of practices such as computerized
management, the use of Internet, or membership to a trade group prove very
beneficial for the activity. In contrast, gains from being a member of a union
or of a large group of traders are quite limited. The results suggest some
policy recommendations that can be prioritized and implemented to improve
the business climate, the productivity of businesses and thus the
competitiveness of domestic trade business in Cameroon.
Studies that have highlighted the business environment problems related to
firm performance in Cameroon are quasi inexistent, especially with regard to
the trade sector. The most recent one conducted by the Ministry of Commerce
has identified the weakness of exports, illicit trade, a market for goods and
services dominated by the informal sector, the weakness of the consumer
protection, and an environment not conducive to the development of trade
(MINCOMM 2010). These problems albeit enumerated, remained very
general and the document does not identify or prioritize specific solutions
regarding trade activities. Moreover, the methodological approach used is
purely qualitative and does not permit to quantify the phenomenon. Other
documents that address these concerns are the executive report of the 2009
general enterprise census (INS 2009) and the country summary of the 2009
Enterprise Surveys (World Bank 2009). In this work, we use both a
qualitative and a quantitative approach to analyze the performance of
domestic traders in Cameroon and propose some solutions. This study is
therefore complementary to the abovementioned works.
There are several other studies that have addressed the impact of business
environment on firm performance in the economic literature, most of which
have focused on a cross-country context (Limao and Venables 2001, Bastos
and Nasir 2004, Dollar et al. 2005, Eifert et al. 2005, Escribano and Guasch
2005). A notable exception that focuses on a within-country context is
Hallward-Driemeier et al. (2006) who studied investment climate impact on
firm performance in China. In these studies, the business environment factors
are introduced as aggregate indices for the country (Dollar et al. 2005, Knack
et al. 1995) or industry (Hallward-Driemeier et al. 2006). Although such
analyses explain what factors affect aggregated macro indicators on average,
they fail to pinpoint which factors may be important within different
countries, different sectors or different categories of firms.
In the present study, we take an approach that is original in several respects:
first, it focuses on firm-level data as well as entrepreneurs’ own perception of
the environment. It thus integrates the fact that these factors affect firms in
3 different ways (even among firms sharing the same industry), as well as the
fact that entrepreneurs, who have heterogeneous abilities and opportunities,
could perceive environmental challenges differently. Hence this framework
better captures heterogeneity across firms and among business managers in a
more refined and disaggregated context. Second, in contrast to previous work
our analysis is based on a structural econometric approach which allows not
only to quantify the magnitude of the phenomena in terms of monetary
shortfalls, and to perform some tests of economic constructs within the retail
sector such as economies of scale in production, but could also be used as a
base to evaluate the impact of business environment on welfare in a general
equilibrium modelling framework. Third, this study departs from most
existing ones that are usually more oriented towards intermediary sectors like
manufacturing (e.g. Dollar et al. 2006, Eifert et al. 2007, Kinda et al. 2009),
but rather focuses on domestic trade which has not received much attention,
in spite of having an overwhelming importance in some countries like
Cameroon (as explained above). Extrapolating the results from other sectors
to the retail sector is not straightforward, particularly because the way some
key components, e.g., output and capital are measured in retail is different
from how it is done in other sectors (see Baily and Solow 2001, and the
discussion in section 3 below).
The rest of the paper is organized as follows. In the second section we present
an overview of the trade business in Cameroon and describe its major
obstacles. A comparative analysis of the case of Cameroon with that of other
regions, particularly sub-Saharan Africa and the rest of the world is also
presented. The third section analyses the impact of business environment on
the performance of business enterprises through structural econometric
modelling. Recommendations and conclusions are given in the fourth and the
fifth sections, respectively.
2
The trade business in Cameroon and the main obstacles
In this section, we give an overview of the retail trade business in Cameroon
and we identify the main obstacles and compare some of its indicators with
those of other countries. We use the terms retailing, trade and commerce
interchangeably.
2.1
Overview of the trade business in Cameroon
The business of trade includes food retail and general merchandize retail.
Trade firms include shops in urban or rural markets, eligible shops in
neighborhoods, supermarkets and other stores selling and distributing goods,
etc. Since very few firms do exclusively wholesaling in the data and
wholesalers usually do retailing as well, we consider wholesaling as an option
4 in the retail activity. Trade is part of the tertiary sector, which includes,
besides trade, business services to companies or individuals, and which is the
most widespread economic sector in Cameroon with a concentration of 85%
of companies that gather 68% of all the permanent jobs (INS 2009).
Compared to other activities of the private sector, trade covers about 61.4%
of the service sector. It has been the dominant activity in all regions for more
than three decades. More than half of the companies engaged in this activity
are located in the cities of Douala and Yaoundé (see Figure 1). Both cities
hold about 55.7% of Cameroon’s retail activities (INS 2009).
Figure 1: Distribution of commercial enterprises by region
33.9$
35.0$
30.0$
25.0$
21.8$
20.0$
15.0$
10.1$
10.0$
6.9$
6.7$
4.0$
5.0$
2.8$
2.5$
3.3$
3.6$
2.9$
1.5$
W
es
t$
hA
ut
h$
ut
So
So
W
es
t$
$
AW
es
t$
No
rth
No
rth
Ea
st
$
Fa
r
LiF
AN
or
or
th
al
$
$e
xc
ep
t$D
la
$
m
Ce
ao
nt
ua
re
$e
$
xc
ep
t$Y
de
$
de
$
Ad
a
un
Ya
o
Do
ua
la
$
0.0$
Source: General Enterprise Census 2009 (INS Cameroon)
A classification of commercial businesses on the basis of turnover and
number of permanent employee at the consolidated company headquarters,
shows that the Cameroon economy is strongly dominated by microenterprises
(ME), that is, those that employ less than 5 people and have an annual
turnover not exceeding 15 million CFA francs. The latter represent about
78.6% of all commercial enterprises identified in 2009. In contrast, large
firms (LE) are less present and represent a fraction of only 0.4% of all
commercial enterprises surveyed (see Figure 2).
5 Figure 2: Distribution of commercial entreprises by size
2.4%&
0.4%&
Micro&Enterprises&(ME)&
18.5%&
Small&Entreprises&(SE)&
Medium&Size&Entreprises&(MSE)&
78.6%&
Large&Entreprises&(LE)&
Source: General Enterprise Census 2009 (INS Cameroon)
The fact that up to 97.1% of trade businesses are either micro or small size
enterprises immediately urge one to ask themselves why do business traders
concentrate around small and microenterprises? Is this a jurisdictional
problem, a lack of access to credit, a lack of human capital, or are there others
factors underpinning such a concentration? The next section discusses some
possible answers to these questions.
2.2
Barriers to trade business in Cameroon
Business environment, market characteristics and the degree of optimism of
business owners and entrepreneurs are key factors in entrepreneurial choice.
The 2009 Enterprise Survey raised the opinion of entrepreneurs on their
business environment, their relationships with the government and the
obstacles they face in carrying out their activities. The responses of business
owners surveyed on their views on the business environment showed that
56.3% of business owners of the retail industry are pessimistic, while only
24.2% of them are optimistic (see Figure 3). A comparison with the views
obtained in other sectors of the economy shows that entrepreneurs of the
retail sector are more pessimistic than others.
6 Figure 3: General opinion of business owners of retail firms about their
business environment (in %)
60.0$
56.3$
50.0$
40.0$
30.0$
19.9$
20.0$
10.0$
8.4$
11.1$
4.3$
0.0$
Good$
Fairly$Good$
Bad$
Indifferent$
N.A$
Source: Enterprise Survey 2009 (World Bank); our calculations
In order to identify the main obstacles hindering the well functioning of this
sector we consider the opinions of the Business owners themselves (or the top
managers of the firms). Since they are the ones taking the risks they are best
suited to understand and provide us with the more pragmatic views of the
business environment. Figure 4 reports the main obstacles indicated by
entrepreneurs of the trade sector in the decreasing order of importance. The
main obstacles enumerated are taxation, corruption, access to credit,
administrative delays and paperwork, illegal competition, infrastructure,
financing costs, the public/private dialogue, energy, transportation and
justice. Taxation is a major concern for 54.8% of entrepreneurs interviewed in
the trade sector. Excessive taxation and customs administrations tend to block
or delay the entry and circulation of goods in the country, as well as
occasional harassment and arbitrary inspections from the part of the
authorities. For about 43.3% of firms, corruption is a major problem that has
worsened over time. However, compared to other sectors of the economy,
business owners seem to be less worried by corruption practices.
Nevertheless, business owners mentioned unfair competition, which includes
the phenomenon of smuggling, illicit trade and the commercialization of
counterfeit products, which is somewhat related to corruption. About 27.6%
of them consider this as a serious obstacle to the well functioning of their
business. It is worth noting that, in fact, the last few years have witnessed
these phenomena contributing to the downfall of many businesses, the layoffs
7 of hundreds of employees and even the disappearance of many commercial
enterprises.
Figure 4: Main obstacles to Trade in Cameroon (in % of business owners’
opinions)
TaxaDon$
54.8$
CorrupDon$
43.3$
Access$to$credit$
33.5$
AdministraDve$delays$and$paperwork$
29.1$
Illegal$compeDDon$$
27.6$
Coût$du$financement$
14.8$
Infrastructures$
14.8$
Lack$of$public/private$dialogue$
14.1$
Transport$
12.7$
10.0$
Energy$et$Water$
JusDce$
8.4$
Labor$legislaDon$
7.0$
Competence$and$training$
5.8$
Sales$outlets$
5.3$
Supplying$
5.1$
Other$
2.7$
1.3$
Concessionary$schemes$
No$obstacle$
0.3$
0$
10$
20$
30$
40$
50$
60$
Source: Enterprise Survey 2009 (World Bank); our calculations
One of the most important obstacles mentioned by entrepreneurs was also the
lack of access to credit. There are 33.5% of business owners who consider it
as a major obstacle. Credit rationing, transaction costs and high interest rates,
as well as excessive collateral requirement have a very negative effect on
access to long-term credit. Also among business owners, 29.1% reported that
paperwork and other administrative delays are major barriers to their
activities. Administrative procedures are relatively complex for government
customers, a situation often reinforced by the inconsistency of some
administrative regulations. Difficulties related to infrastructure are very
common. In fact, 14.8% of entrepreneurs surveyed reported that their
activities are hampered by problems related to poor roads, ports, airports and
insecurity. In addition to that, there are concerns related to physical transport
(12.7%), water supply (5.1%) and opportunities (5.3%). As for water and
electricity, the supply network is insufficient and thus forced some companies
8 to install emergency generators, thereby increasing their production costs and
making their products relatively less competitive.
2.3
A comparative analysis with other countries There are many criteria that are often used for cross-country comparisons. In
this study, we consider a few indicators, which are enough on their own, to
compare the business environment and the structures that affect the
development of Trade in Cameroon and other countries, including
infrastructure development, factors related to the import/export of goods and
the financing of entrepreneurship. The lack of road, railroad, maritime
infrastructure and other physical methods that impede trade is relatively
important within the country compared to other regions. According to the
rural accessibility index of the World Bank only 27% of the rural population
of Cameroon live within 2 km of an accessible route in any season, against
30% for Saharan Africa. Similarly, Cameroon have a relatively low urban
connectivity, with 70 meters of road per 100 000 inhabitants and a road
density of 72 kilometres of road per 1,000 squared km, of which only 8.3%
are paved.
Figure 5: Transport quality index in some African countries
0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 0.6 0.32 0.38 0.45 0.33 0.42 0.25 Source: Africa infrastructure country diagnostic (AICD, 2008)
Figure 5 presents a comparison of the quality of the transport service of some
African countries, as measured by the index of logistics performance. The
higher the value of the index, the higher is the quality of transport. According
to this index, the quality of transport is higher in Kenya and Uganda and
lowest in Chad and Burkina Faso, compared to Cameroon.
9 Table 1: Comparison of credit access indicators
Indicator
Value of the collateral required
for a loan (in % of the loan)
Proportion of loans requiring
collateral (in % of total loans)
Proportion of firms requiring a
loan (in % of all firms)
Cameroun
Sub-Sahara Rest of
Africa
the World
213.1
155.2
163.3
83.2
80.5
78
82.6
65.1
60.6
Source: Enterprise Survey 2009 (World Bank); our calculations
Access to credit is a crucial factor for entrepreneurship. It can be seen in
Table 1 that not only the proportion of bank loans requiring collateral is
higher in Cameroon, but also the value of the collateral needed to obtain such
loans is also higher. The collateral requirement is estimated at about 2.13
times the value of the requested loan in Cameroon, while it is 1.55 times in
Sub-Saharan Africa and 1.63 times in the rest of the world. This suggests that
while domestic trade entrepreneurs are more financially constrained in
Cameroon (see the last row of Table 1) they have on average more difficulties
in obtaining bank loans than the other regions considered.
Table 2: Comparison of import/export related indicators
Indicator
Proportion of firms for which
customs is a major constraint
Number of days to clear imports
Number of days to clear exports
Proportion of firms exporting at
least 1% of their sales
Cameroun
Sub-Sahara Rest of
Africa
the World
26.3
21.7
17.7
23.9
15.1
13.4
7.5
11.3
7.1
9.3
10.1
17.2
Source: Enterprise Survey 2009 (World Bank); our calculations
Given that the trade business sometimes involves exporting or buying goods
from foreign countries to resale in domestic market the functioning of the
ports of entry in the country has an important impact on the domestic trade
business. Table 2 presents some indicators related to the import and exports
of good in Cameroon, in comparison to the other regions. It appears that the
time to adjust to clear exports and imports of goods are relatively longer in
Cameroon. These delays are on average 15 days for exports and 24 days for
imports and are twice as long as the average in the rest of the world.
Moreover, the proportion of firms identifying customs regulations as a major
obstacle is higher in Cameroon than in other regions.
10 Another factor that crucially impacts the performance of retailing firms is the
quality of the workforce. In fact, productivity gains from an improved
business environment can only be fully realized by firms that hire more
highly skilled workers or at least adopt organizational training programs that
help improve the skills of workers. However, only 25.5% of trade firms offer
a formal training opportunity to their workers in Cameroon, compared to
30.3% in Sub-Saharan Africa and 35.1% for the rest of the world (World
bank, 2009).
3
Econometric Analysis of the Performance of Retail Firms in
Cameroon
In this section, we use an econometric approach to measure the impact that
the business environment as characterized by the various factors identified in
the above sections may have on the performance of entrepreneurs in the trade
sector. For this purpose, we specify a linear regression model with
multiplicative heteroskedasticity and use the method of quasi-maximum
likelihood to estimate the model parameters and the bootstrap method to
estimate their standard errors and significance.
3.1
Estimating the performance of Commercial firms
To estimate the productivity of firm i, we postulate a relationship between its
output Yi and its inputs, capital Ki, and labour Li
Yi=θi f(Ki,Li)
(1)
Where θi captures the productivity factor of the firm (unobserved by the
econometrician). The productivity θi depends on several elements including
the environmental factors, firm characteristics and entrepreneur’s ability.
Assuming a Cobb-Douglas production function, i.e., f(K,L)=KβK LβL, we have
a log-linear relationship:
lnYi= βK lnKi + βLlnLi + lnθi
(2)
The output Yi is taken as the gross annual margin (or value-added) of the trade
firm, that is, the difference between the sales and the cost of goods sold (see,
e.g. McAnally 1963). Baily and Solow (2001) explain that value-added
generated by retailers provides the best simple measure of retailing output.
This measure has three components: the quantity and assortment of goods
sold, the selling price of goods sold, and acquisition costs of goods sold. Each
of these components may be affected by the characteristics of the firm and the
quality of service delivery, by firm operating practices, and the adoption of
new information technologies and related business practices. In this analysis
we consider two inputs: capital that we approximate with the sales area of the
11 store (see Baily and Solow 2001). Although this variable is not a perfect
measure, it is strongly correlated with the elements that make up the capital of
traders such as the cost of energy storage, refrigeration equipment, lighting,
shelving and display equipment monitoring and equipment procurement and
delivery. The second component is the labour factor that includes the total
number of permanent and temporary workers, which is proportional to the
total annual number of hours worked by permanent and temporary
employees. In fact, preliminary analysis with aggregated labour hours
indicated that both measures could be used alternatively without loss of
explanatory power.
The productivity θi is unobserved by the econometrician. We assume that it
depends on the characteristics of the firm and the market (see Park and Sauer
2013, King and Park 2004) and the observable characteristics of the
entrepreneur (as in Paulson et al. 2006, Nguimkeu 2013). In this study, we
generalize these authors by assuming that the productivity factor also depends
on the business environment; in particular, it is affected by environmental
barriers to trade as noted in the previous sections. We can therefore express
the logarithm of the productivity θi of firm i as follows:
lnθi = β0 + Xi’γ + Zi’δ +Σj αj Fji + εi,
(3)
Where Fji is a dummy variable that indicates whether the business owner of
firm i perceives factor j as a major obstacle to its operations; Xi is a vector of
variables that controls for the entrepreneur’s specific characteristics such as
his level of education, experience, gender and status (foreign or not); Zi is the
vector of firm-specific characteristics that includes the age of the firm, the
type of management (computerized or not), whether the firm is part of a
commercial group, whether the firm does wholesaling, whether or not
employees are members of a union, the firm’s location (big city or not, size of
the locality). The terms εi can be seen as measurement errors or as a zeromean productivity shocks, which we assume to be independently and
normally distributed across firms.
Combining equations (2) and (3), we obtain a comprehensive form of the
model, which can be written as:
lnYi = β0 + βK lnKi + βLlnLi + Xi’γ+ Zi’δ + Σj αj Fji + εi.
(4)
Given the wide variance in the sizes and types of stores (as evidenced by the
descriptive statistics below), and the heterogeneity of businesses, the standard
assumption of constant variance of the stochastic error term in this model is
likely to be violated. We therefore assume heteroskedasticity by expressing
the error variance as a multiplicative function of the explanatory variables
(Harvey 1976), i.e.,
12 εi∼N(0,σi2) with σi2=σ2exp(Wi’ψ),
where Wi=[lnKi lnLi Xi’ Zi’ Fi’]’ is the vector of all covariates and Fi=[F1i
F2i, …FJi]’ is the vector of business environment factors.
The model parameters are estimated by the method of maximum likelihood.
The log-likelihood of the model is given by
Loglikelihood = -(n/2)log(2π)-(1/2)∑i log(σi2) - (1/2)∑i(εi2/σi2)
=-(n/2)log(2πσ2)-(1/2)∑i Wi’ψ - (1/2σ2)∑i(εi2/exp(Wi’ψ))
Given the size of our sample (described below), the standard errors may not
be correctly estimated if we use the asymptotic variance-covariance matrix.
We therefore apply the bootstrap method (see Efron and Tibshirani 1986) to
accurately estimate the standard deviations of the estimators and test the
significance of the coefficients.
3.2
Descriptive Statistics and Empirical Model
The definitions of the variables used and their summary characteristics
including sample averages and standard deviations are presented in Table 3.
Our sample of formal retail firms represents a total of 153 firms of the retail
module of the 2009 Enterprise Survey. For the econometric analysis we also
grouped some of the environmental factors (depicted in Figure 4) into single
factors, particularly those that could be thought of as describing somewhat
similar phenomena and are highly correlated according to our preliminary
cross-correlation examination. For example, customs regulations, labour
legislation and administrative delays are merged into a single factor called
“Regulation” (denoted REGUL); Likewise, crime and political instability are
represented by a single factor called “Safety” (denoted SAFETY), etc; see
Table 3 for details.
Some features of this data are worth noticing. Companies realize an average
annual gross margin of 157 million CFA francs and employ an average of 71
workers per year. Business owners have average years of schooling
corresponding to secondary education, and an average of 16 years of work
experience. The proportion of female entrepreneurs is very low in the retail
trade sector in Cameroon, representing only 16% of entrepreneurs in the
sample, and perhaps suggesting the existence of gender barriers to
entrepreneurship in Cameroon. The firms in the sample have on average been
operating for many years. They have 16 years of age on average and more
than 30% of them have an employee’s unionization rate of more than 25%.
13 Table 3: Variable description and summary statistics
Variable
Description
Mean
GM
Gross Margin (annual in millions of FCFA)
Production factors
SAREA
Selling Area (in squared meters)
LABOR
Total number of workers
Characteristics of the business owner
EDU
Education (years of schooling)
EXP
Experience (years of experience)
GENDER
Gender, 1=female, 0=male
FOREIGN Origin, 1=Foreigner, 0=Cameroonian
Characteristics of the firm and the market
TYPE
Type of activity, 1=wholesale, 0=retail only
AGE
Age (number of years of operation)
MEMBR
Membership to a group 1=yes, 0=no
GSIZE
Group size (number of stores)
UNION
>25% employees are unionized, 1=yes, 0=no
INTRNET Internet connection available, 1=yes, 0=no
LOCSIZE
Location size of the firm
Business environment (Major factors)
TAX
Taxation 1=yes, 0=no
ACCESS
Access to credit or to land, 1=yes, 0=no
REGUL
Customs, licenses, regulations, 1=yes, 0=no
CORRUP
Justice, corruption, no dialogue, 1=yes 0=no
INFRAST Infrastructure, transport, energy, 1=yes, 0=no
COMPET
Competition of informal, 1=yes, 0=no
SAFETY
Crime, political instability, 1=yes, 0=no
WORKFR Competence of the workforce, 1=yes, 0=no
3.3
Standard
deviation
156.73
433.12
191.88
71.098
327.69
485.05
15.745
16.199
0.163
0.111
2.644
9.317
0.371
0.315
0.137
16.56
0.235
1.229
0.320
0.281
1.739
0.345
12.28
0.426
1.061
0.468
0.451
0.657
0.288
0.157
0.039
0.085
0.059
0.268
0.098
0.007
0.454
0.365
0.195
0.280
0.236
0.444
0.298
0.081
Results
The parameter estimates of the production function of trade margins are
presented in Table 4. The coefficient of the selling area is estimated at 0.281.
This means that a 10% increase in the sales area is associated with a 2.8%
increase in gross margins. The coefficient of labour is estimated at 0.727.
This means that a 10% increase in the number of workers is associated with
an increase of 7.27% of gross margins. The sum of the coefficients of the two
factors of production, selling area (SAREA) and total number of workers
(LABOR) is close to unity both numerically and statistically, since the null
14 hypothesis of constant returns to scale could not be rejected at the 5%
significance. This implies that despite current trends toward larger store
formats, optimal store size depends on market setting and organizational
structure, but small stores can compete effectively with larger ones.
Estimates of productivity parameters related to the entrepreneur show that the
level of education (EDU) and experience (EXP) of the entrepreneur are
positively correlated with the gross margins of the company, and that foreign
companies tend to make more margins than domestic firms. These results are
consistent with those made by other studies that have shown the positive role
of education and experience in the performance of Cameroonian firms (see,
e.g., Nguetse 2009, Nguimkeu 2013). As for a comparative advantage that
foreign trade enterprises seem to get, it is possible that this result is, for
example, related to product differentiation. The binary variable that controls
for the gender of the business owner (GENDER) is negative but not
significant and therefore does not permit to conclude whether businesses run
by women are significantly less efficient.
The results also show that firm characteristics such as age (AGE), type
(TYPE), membership to a business group (MEMBER), high rate of
unionization of employees (UNION) and computerized management
(INTERNET) are positively correlated with trade margins. In particular,
companies doing wholesaling activities (whether partly or exclusively) make
margins that are on average 2.3 times higher than the margins of the retailonly companies, all else being equal. It should also be noted that the binary
variable representing the unionized workforce UNION has a significant
positive effect on margins. This result is consistent with the descriptive
statistics of King, Jacobson, and Seltzer (2002) who reported that the amount
of sales per worker and gross margins are higher in stores with unionized
workers, and moreover these stores offer also relatively higher wages. Farber
and Saks (1980) emphasize that unionization generally increases the mean
and decreases the variance of the wage distribution within firms. It therefore
benefits workers who are at the bottom of the wage scale. An interpretation of
the positive sign of this coefficient would then be that unionization has a
positive effect on wages, which in turn have a positive impact on the overall
productivity of trade firms, as measured by gross margins.
Of the two variables describing the group membership (MEMBER) and
group size (GSIZE), the first coefficient is positive and significant at 10%.
This suggests that consortium brings productivity gains associated with, for
instance, economies of scale in terms of supply, advertising, and
concentration of certain managerial functions, etc. However, the gains from
group membership are quite limited. Moreover, the insignificance of group
15 size does not allow to inferring about the importance of the size of the
consortium on the related trade margins.
Table 4: Model Estimation Results
Variable
Parameter
Estimation
Standard error
Constant
β0
11.55
1.934
SAREA
βK
0.281**
0.125
LABOR
βL
0.727**
0.147
EDU
γ1
0.023*
0.013
EXP
γ2
0.024*
0.013
GENDER
γ3
-0.070
0.334
FOREIGN
γ4
0.084**
0.042
TYPE
δ1
0.832**
0.412
AGE
δ2
0.037*
0.019
MEMBER
δ3
0.054*
0.032
GSIZE
δ4
-0.055
0.351
UNION
δ5
0.017*
0.010
INTERNET
δ6
0.030*
0.016
LOCSIZE
δ7
0.096
0.219
ACCESS
α1
-0.043*
0.026
REGULATION
α2
-0.058*
0.031
CORRUPT
α3
-0.076**
0.034
INFRAST
α4
-0.032**
0.015
COMPET
α5
0.031*
0.018
SAFETY
α6
0.033
0.426
WORKFR
α7
-0.064*
0.034
R2
LN p-value
Wald χ2
0.618
0.091
2530.8
Number
of obs.
153
* Significant at 10%
**Significant at 5%
Business environment, as shown by the estimated coefficients of the binary
factors reflecting the views of business owners, significantly influence the
performance of trade companies. The only binary variable whose coefficient
is not significant is the SAFETY variable measuring the effect of crime and
political instability on the gross margins of traders. This result is not
surprising, given the fact that Cameroon is a country with a relatively stable
political and social environment (see, e.g., AEO 2007). The results show that
the lack of access to credit and land (ACCESS), administrative delays and
16 poor regulation (REGULATION), corruption and shortcomings of the judicial
system (CORRUPT), lack of infrastructure (INFRAST) and incompetence of
labor (WORKFR) negatively affect the gross margins of trade businesses, at
the 10% statistical threshold. The sensitivity of the gross margin to these
factors is not necessarily uniform throughout the factors. We note for
example that the gross margins are more elastic to corruption than
infrastructure, and more to the quality of the workforce than to access to
credit.
It is important to note that although the competition of the informal sector
(COMPET) is perceived by owners of formal enterprises as an obstacle to
their operation, our estimates show, perhaps surprisingly, that this perception
is associated with a rather positive gross margins. Indeed, companies that
perceive the informal sector as a major obstacle for their activity realize on
average 1.03 times more gross margins than other companies, all else being
equal. Competition from informal trade businesses seems to have a beneficial
effect on the performance of their formal sector counterparts. This could be
explained by the fact that competition has incentive effects on effort
productivity, as argued by the theoretical results of Etro and Cella (2012) and
the empirical findings of Ennasri and Willinger (2011).
Finally, the adequacy of the empirical model is assessed using the Wald test
statistic for the overall significance and the Lavergne and Nguimkeu (2011)
statistic (denoted LN) for the specification test. For the latter, we use the
bootstrap version of the test, which is convenient for small and moderate
samples. Both statistics confirm that the model is not at odds with the data
(the value of the Wald statistic is 2350.8 and the p-values of the LN test is
0.091, thus failing to reject the model at 5%).
4
Implications and Recommendations
The above analysis suggests that there are several dimensions in which the
business environment of trade firms can be improved. Our aim here is to
examine the implications in terms of payoff loss and propose some
recommendations that could improve the business environment and the
functioning of trade based on the facts and findings above. We prioritize
those that according to our results appear to be currently the most salient. The
first two recommendations are oriented to the public policy makers. The last
three recommendations concern both the state and actors of the private sector.
(i) Improving infrastructure and increasing the supply of clean water and
energy
Roads and communication, transportation and electric power are key
component for the well functioning of the trade sector in Cameroon.
17 Improving the infrastructure does not only improve the circulation of people
(buyers and sellers) and goods within the country but also allow to fully
exploiting the opportunities and trade-related capacities. Our estimates show
that the lack or inadequacy of infrastructure creates an average shortfall of
about 3.2% in annual gross margins of commercial firms, that is roughly 4.94
millions CFA, all else equal.
(ii) Reducing regulatory burden and extreme taxation
This reform includes simplifying procedures required to clear export or
imports at the customs, and reducing administrative procedures required to
open a formal commercial enterprise. The latter is one of the objectives aimed
at encouraging entrepreneurship in the formal trade sector. While trade is the
most common economic activity in Cameroon, only an extremely small
fraction of this activity is formal. The rate of informality in trade is relatively
higher than in all other sectors. The government should adopt a policy to
facilitate the licensing process for the creation of formal commercial firms
and more importantly provide conditions that allow a smooth transition from
informal trade activity to formality.
(iii) Fighting against corruption and illicit trade.
Clearly, this reform would yield the biggest payoff in terms of gross margins
gains. This recommendation is in line with the general framework of the fight
against corruption which is the impediment most mentioned by entrepreneurs
after taxation (see Figure 4). Illicit trade, which involves fraud, smuggling
and the presence of counterfeit products in the market, creates inefficiencies,
distortions and unfair competition. It is the source of customs and tax loss for
the state, loss of market share for legal firms, and loss of jobs for workers.
Our estimates show that reducing corruption would improve the average
gross margins of the otherwise exposed traders by 7.6%. This reform can be
implemented starting by frequent awareness campaigns, direct police
interventions, and the media. But, more importantly by instilling a culture of
integrity and citizenship.
(iv) Revising credit access conditions for retailers
Descriptive statistics show that credit access conditions in Cameroon are
relatively stronger compared to other countries of sub-Saharan Africa and the
rest of the world. Our estimates show that the lack of access to credit
represents an average shortfall of 4.3% in annual average gross margin in
commercial enterprises, representing about 6.27 millions CFA in a firm with
average characteristics. The conditions for granting credit to businesses
should therefore be revised and improved. Two pillars could be mobilized for
this purpose, i.e. the banks and the microfinance institutions. The role of the
18 central bank, through the management of interest rate could allow commercial
banks to provide economic operators with financial resources at minimum
cost. This recommendation is also featured in the executive summary of the
2009 general enterprise census (INS 2009).
(v) Enhancing human capital
Our results show that education and training have a significant impact on the
productivity of trade firms. On the other hand, more than 5% of trade sector
entrepreneurs complain about the lack of competence of the workforce as a
major obstacle to the well functioning of their business. Our estimates also
confirm that firms suffering from workforce incompetence annually lose on
average 6.4% in gross margins (that is 9.72 millions CFA) compared to their
counterparts who do not suffer from this impediment. Given the critical role
of business training on firm performance (see, e.g. McKenzie and Woodruff
2012), trade firms should hire more qualified workers and frequently organize
seminars and training workshops for their employees. This would, for
example, enhance their knowledge base on key topics such as accounting,
taxation, inventory management, procurement, the use of ICT, the use of
statistics, the use of research results, the merger and acquisition of assets,
customer service, business and family, the ethics of business, etc.
5
Conclusion
With a representation of about 52% of all companies, the retail trade business
is one of the most prominent activities in Cameroon and could be a major
asset for the emergence of the country, if properly harnessed. This study
provides an overview of the retail trade activity in Cameroon and presents the
main obstacles to its well functioning. A structural econometric analysis of
the performance of retail firms using data from the 2009 Enterprise Surveys is
also presented. The study reveals that several factors obstruct the well
functioning of domestic trade in Cameroon. The major barriers identified are
illicit trade, lack of access to credit, infrastructure, regulatory burden, and
lack of competence of the workforce. Their impacts on trade activity have
important consequences on firm performance in terms of gross margins
shortfalls. In fact, apart from the political instability that has a rather
negligible effect on the performance of the firms (since Cameroon is in fact a
relatively politically stable country), all other identified factors related to
business environment have important repercussions on the gross margins of
firms. Our results show that retail companies are making significant monetary
shortfalls due to poor business environment in Cameroon. We therefore use
our results to make some recommendations that could improve the business
environment, strengthen the capacity of economic operators in the trade
19 sector and contribute to make Cameroon a more competitive country in terms
of domestic trade. The framework also allows to testing economies of scales in the retail
industry, as well as evaluating the effects of market characteristics and
enterprise structure on firm productivity. Despite the new trend towards large
selling areas like supermarkets, we found that there are constant returns to
scale in the retail trade business in the Cameroon formal sector. Business
orientation (wholesale or retail-only), group membership and use of
information and communication technologies are important productivity
drivers. Unionization of the workforce is also associated with higher levels of
annual gross margin though the gains are quite limited, compared to other
factors. Although it is usually argued that the informal sector takes its toll on
government tax revenues, our results suggest that competition imposed by
this sector to formal trade firms stimulates the efforts of the latter, thereby
improving their performance.
6
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