Financing Firm Innovation in Africa

Abstract

This study contributes to the existing literature on innovation by examining how manufacturing firms in Africa fund innovation activities. This study specifically seeks to identify whether innovative companies exhibit financing patterns distinct from those of non-innovative ones. Besides, this study seeks to gauge the association between innovation and firm features, such as ISO certification, firm age, exporter firms, firm size, internal funding, top female manager, top managers’ experience, bank financing, obstacle to access to finance, financial constraints, government ownership, and foreign ownership, among others. This study finds that the main drivers of firm innovation in Africa are ISO certification, firm age, firms communicating with customers through emails, and websites, exporter firms, firm size, internal funding, top female manager, top manager’s experience, bank financing, trade credit, firm location, and location size. We also found that only 19.6% of the sampled firms have ISO certification within the last three years. As captured by the innovation index, a summary of the level of innovation among firms shows that only 31.7% of the firms fall within high innovation. The study, therefore, recommends that to salvage the low levels of firm innovation among African firms, it will be prudent to 1) increase R & D spending (the ratio of R & D expenditure to GDP), 2) attract and incentivize highly qualified researchers into public, and privative enterprises, not only into higher institutions of learning, and 3) incentivize and promote patent activities.