The patterns of value chain integration and capacity utilization across firms in Africa

Abstract

This thesis addresses the critical challenge of low capacity utilization among firms in Africa, a key indicator of firm performance that remains significantly underdeveloped among firms across the continent. By focusing on value chain integration: domestic (DVC), foreign (FVC), and hybrid (HVC) forms, this research seeks to bridge a crucial gap in understanding how different integration strategies affect the overall performance of firms in Africa. The motivation for focusing on Africa stems from the continent's promising position on the global stage. With Africa hosting the world’s youngest and fastest-growing population, projected to nearly double to 2.5 billion by 2050, along with pioneering innovations, the continent offers vast opportunities for robust and inclusive growth. By leveraging its abundant natural and human resources, Africa has the potential to enhance prosperity both within the continent and globally. However, achieving this potential requires addressing persistent inefficiencies in production, such as low capacity utilization, which this research aims to tackle. While existing literature has extensively explored the benefits of value chain integration on firm performance metrics such as productivity and innovation, there is a lack of focused research on how these benefits translate into improved capacity utilization levels, particularly among firms in Africa. This thesis contributes to the field by introducing the concept of hybrid value chain (HVC) integration, a novel approach that combines elements of both domestic and foreign integration, to examine its impact on capacity utilization. Using data from the World Bank Enterprise Surveys, covering 14,823 firms across 36 industries in Africa, the research employs a linear regression model to reveal that DVC integration significantly enhances capacity utilization. In contrast, FVC integration presents challenges that can reduce capacity utilization unless firms bolster their technological capabilities. The findings highlight that firms in Africa can overcome the barriers of foreign integration through technological advancements, which is crucial for improving their competitiveness in global markets. Moreover, the research identifies the detrimental impact of informal competition on capacity utilization, emphasizing the need for strategies that mitigate these pressures. While the study also explores the effects of HVC integration, it acknowledges limitations in its conceptualization, as this form of integration shows a negative impact on capacity utilization, indicating a need for further investigation. Overall, this research fills a gap in the literature by establishing a direct link between value chain integration and capacity utilization in Africa, offering insights that could guide business leaders and policymakers in enhancing overall firm performance across the continent. With Africa's potential for growth and development, improving capacity utilization through effective value chain integration strategies is crucial for unlocking the continent's full economic potential.