Private Investment and Adjustment in Sub-Saharan Africa: Econometric Modelling and Estimation on Panel Data from the Manufacturing Sectors of Cameroon and Côte d'Ivoire.

Summary Private investment is at the heart of the problem of structural adjustment policies. More than any other intermediate economic policy objective, its recovery is a prerequisite for the transition from stabilization, whose recessionary effects are certain, to growth. However, despite the incentives adopted, the 1980s were accompanied by a decline in private investment in sub-Saharan African countries. Because of macroeconomic instability and the particular economic structures of African countries (imperfect financial markets, a dynamic informal sector, the weight of the state), traditional models of investment have serious difficulties in explaining this reaction of the private sector, as their hypotheses become inappropriate. In addition, the weakness of the statistical apparatus leads to measurement errors on the variables. Taking into account demand uncertainty and using microeconometric analysis provides a better understanding of the microfoundations of investment behavior in Africa. The results obtained from econometric estimates of panel data for the manufacturing sectors in Cameroon and Côte d'Ivoire corroborate the hypothesis that uncertainty about the future prospects of firms' markets has a significantly negative influence on their investment activity. In Cameroon, local private investors appear less sensitive to uncertainty than foreign investors. In Côte d'Ivoire, firms benefiting from stronger protection appear to be more sensitive to the prospects of a change in outlets. The use of panel data econometrics made it possible to control for unobservable individual heterogeneity in order to obtain greater reliability in the estimates. Finally, the study highlights the role played by the institutional environment of the African entrepreneur.