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Chapter 2: Thesis Outline (1.0 Introduction: Understanding struggles in…
Chapter 2: Thesis Outline
1.0 Introduction: Understanding struggles in Growth for post-conflict countries
Section 2.0: Liberia as our case study
2.1: Why is Liberia a good case study?
2.2: Liberian Economic History
Section 2.3: The Current Economy in Liberia
2.3.1: Macroeconomic Perspectives
2.3.2: Characteristics of Firms (Local and FDI)
2.3.3: The Typical Liberian Entrepreneur
Section 3.0: HRV Growth Diagnostic Model
3.1: Why its better to not use widespread reform but instead focus on targeting the biggest distortions
2.2 Diagnostic Tree:
Section 4.0: The HRV Model used on Liberia (4.1-4.3 = Low return to economic activity and 4.4-4.5 = High Cost of Finance)
4.1: Low Social Returns
4.1.1 Poor Geography: Small country and market size.
4.1.2 Low Human Capital
Civil war created large educational gap
Education curriculum poorly developed since
Middle management is very hard to find
4.1.3: Bad infrastructure - most was destroyed during the war
Roads
Electrical Grids
Water systems
Internet
4.2: Low Appropriability: Government Failures
4.2.1: Microeconomic Risks
High Corruption
Property Rights after war = many disputes
Lack of consistency between institutions
Policies like SEZ are good idea but very bureaucratic, take long time
High taxes but little enforcement on collecting
4.2.2: Macroeconomic Risks
Current Government Debt and spending (unsustainable)
Depreciation and high cost of living
Large Negative shocks to economy since war
Ebola Crisis
National Elections and Transition to new government
BOX: Transition to the new government in depth
UNMIL's exit
4.3: Low Appropriability: Market Failures
4.3.1 Lack of "self-discovery": Little uniqueness in the market and entrepreneurship as survival NOT growth
4.3.2 Coordination failures: Liberian businesses do not work with each other or make business communities, making it hard to compete.
4.4 Bad International Finance
4.4.1: Problems for large FDI (Concessionary)
New government is anti-foreign and little experience with FDI
Very expensive for company to build necessary infrastructure
Many, costly social problems arise in community
4.4.2: Problems for Non-Concessionary Foreign Businesses
New government anti-foreign
Expectations that all investment should be social investment (hard to make a profit)
Still struggle with lack of government regulation
4.4.3: Problems for Private Investors (Funds)
Why are investors not entering the market (even though impact and investment in Africa becoming more popular)?
Economic and Political Instability
Negative Perceptions
Lack of Investment Ready Companies
BOX: CASE STUDY - EXPERIENCE WITH IGNITE FUND
Lack of incentives for managers
4.5: Bad Local Finance
4.5.1: Low domestic savings
Most Liberians lost a lot of investment and savings during war
High cost of food/living makes saving difficult
Bank Accounts (look into this) - Some savings through SuSus
4.5.2 Poor Intermediation
Its very difficult to receive a loan/financing
Banks (Very risky for banks to give loans because of low repayments)
High Interest Rates
High Collateral
No credit union
Quick repayments
Aid Institutions who give equity/loans
Decreases incentives for market growth (become dependent on aid) - aid flooded in after the wars **UN is example of little private sector help
Aid works on slower timeline then private sector, making things very hard for businesses working with aid organizations for funding
Section 5.0: HRV vs. RBV
5.1: Why HRV Doesn't Help us with reforms in post-conflict. TOO MANY PROBLEMS that are all interlinked.
5.2: How can we determine the main issues then? Some firms, especially foreign-owned businesses and ones owned by 'repats' are successful in Liberia - this comparison may help
5.3: Resource Based View - Understanding differences in resources between foreign and domestic owned firms that determine competitive advantage (in Liberia's case: survival)
External Problems which all firms face
Tangible Resources (Finance, Machinery, Labour, equipment)
Usually determines competitive advantage for firms in developing countries because not all firms have access to them
Intangible Resources (Reputation, Training, Capabilities (managerial and organizational skills))
Determines competitive advantage in developed countries as all firms have access to tangible
Section 6.0: The RBV and Liberian Firms (Foreign vs. Domestic) vs. Repats)
6.2 Access to Tangible Assets. Due to market failures, competitive advantage is primarily based on access to tangible resources in developing countries. In post-conflict countries, these market failures are substantially caused by the fallouts from the civil wars and make them even more difficult to find.
Biggest Difference between foreign and domestic firms are...
6.2.1: Access to Finance
2 more items...
6.2.2: Human Capital
2 more items...
6.3 Access to Intangible Assets: If companies in Liberia are able to gain access to tangible resources (this is rare in Liberia), then competitive advantage than is derived from intangible. However, the civil war has negatively influenced these assets for Liberians making it difficult for them to gain competitive advantage
Biggest Difference between foreign and domestic firms are...
6.3.1: Access to quality training
1 more item...
6.3.2: A culture of trust in business
1 more item...
6.3.3: Business Networks
2 more items...
6.3.4: Capabilities
3 more items...
6.1 UNIQUENESS - doing something different
Before we even talk about resources, the first factor necessary for a business is a unique idea*
“a firm is said to have a sustained competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors and when these other firms are unable to duplicate the benefits of this strategy” (Barney, 1991)
This is a bit different from RBV because the business IDEA is categorized more as intellectual property within intangible assets. However, in this setting, I think the idea of a business and how it "stands out" is the first step to competitive advantage. It also matches with the companies that have seen some success in Liberia
Every business is doing the same thing. Liberians see one idea working and they duplicate it. There are very few businesses that stand out.
This is caused by a lack of critical and creative thinking that should have been done through education. Education gap created through war (more detail later).
This is why the current business's in Liberia that have competitive advantage are:
1) Liberians who were educated elsewhere (many fled from the war as refugees and have returned: "Repats")
2) The Foreign Business Community (Lebanese, Indian, Chinese)
Section 7.0: A Comparison with Sierra Leone
7.1: Why Sierra Leone?
Similar History and geography, which means that external factors are the same
Use HRV model to show similarities
7.2: RBV for Sierra Leone domestic vs. Liberia domestic
Section 8.0: Can Private (Impact) Investing Fill these gaps?
Impact Investing usually involves providing financial capital and technical assistance (attempting to fill the finance and human capital gap)
8.1: Experiences with Liberian firms who have worked with impact investing firms
8.2 Experience with Sierra Leone Firms who have worked with Impact Investing Firms
Section 9.0: CONCLUSION
The HRV Model uses diagnostic tree to determine the one or two distortions in Market that is stopping growth
Problem with this in a post-conflict setting is that conflict has caused all the market distortions in this model: how do we know which ones to target?
