Africa’s firms are not growing—new data reveal a jobs challenge

Sub-Saharan Africa needs to create roughly 15 million new jobs new jobs every year to absorb its growing working-age population. Meeting that target requires not only new firms entering the market but also existing ones growing — and on this second front, the evidence is troubling.

New evidence from the World Bank Enterprise Surveys shows that African firms do not grow. Across 48 Sub-Saharan African economies, a firm that has operated for nearly three decades employs barely twice the workers it had at birth. The gap relative to high-income economies is large, structural, and costly.

Firms grow far less with age in Sub-Saharan Africa

The analysis draws on the World Bank Enterprise Surveys (WBES), which cover formal (registered) private firms with five or more workers in manufacturing and selected services, using a standardized global methodology. Because the survey records both the year a firm began operations and its number of full-time permanent workers at start-up, we can construct a simple measure of employment growth over the life cycle of surviving firms.

The analysis compares average employment across firms of different ages within three country groups — Sub-Saharan Africa (SSA), other low- and middle-income economies (RoW LMICs), and high-income economies (HIC). Figure 1 plots each group’s lifecycle profile: a firm’s current employment relative to its size at entry. In high-income countries, surviving firms in the oldest cohort (26+ years) are 3.27 times their entry size; in the rest of the developing world the ratio is 2.31; in Sub-Saharan Africa it is just 2.05 — and the trajectory flattens almost completely after the first decade. This pattern echoes Hsieh and Klenow (2014), who document that surviving plants in India and Mexico roughly double in size over their lifetimes, whereas comparable U.S. plants grow more than sevenfold — a gap Africa mirrors and deepens.

Figure 1. Average employment relative to entry, by firm age cohort and country group.

The stagnation is not just in one sector

One natural question is whether the flat SSA lifecycle is concentrated in a particular sector.  Splitting the sample into manufacturing and services suggests it is not. In both sectors, sub-Saharan Africa’s lifecycle profile is substantially flatter than in high-income comparisons. In manufacturing, SSA mature firms (26+) reach 2.23× their entry size, compared to 3.71× in high-income countries. In services, the SSA figure is 2.04×, against 3.18× for HIC. The gap is structural, not sectoral.

Figure 2. Lifecycle by sector: manufacturing versus services.

Why might African firms stagnate

Several forces contribute to the flat lifecycle documented above.

Misallocation and correlated distortions. When distortions rise with productivity — so that more productive firms face higher effective wedges — this reallocation engine breaks. The productivity–distortion elasticity is the key parameter: a higher elasticity means that each unit of additional productivity is met with proportionally greater distortions, blunting the incentive to invest and grow. A quantitative model shows that increasing this elasticity to levels typical of developing economies can sharply reduce average establishment size and aggregate productivity (Bento and Restuccia, 2017). The WBES data provide direct evidence that this elasticity is higher in Sub-Saharan Africa — corroborating Cirera, Fattal-Jaef, and Maemir (2020), who document the same pattern using census-level data from four African economies.

Management, delegation, and weak selection. African firms rely heavily on family labor and owners that are also managers, and face contractual frictions that prevent delegation to outside managers — reflecting low institutional trust and weak enforcement of employment contracts All this means that firms hit an organizational ceiling long before they exhaust their productive potential (Akcigit, Alp, and Peters, 2021; Bloom, Sadun, and Van Reenen, 2012).

Market access and demand constraints. Thin, fragmented markets — the product of poor infrastructure, limited market integration, and low average incomes in SSA— constrain how large even well-run firms can grow, regardless of their productivity (Jensen and Miller, 2018; Atkin, Khandelwal, and Osman, 2017).

These channels reinforce one another. If productive firms face high wedges, they cannot delegate, and cannot reach broader markets. Consequently, the “selection and scaling” process that drives job creation in richer economies is muted: firms survive, but do not expand much.

A note on sample coverage

The lifecycle patterns documented here are drawn from the standard WBES, which covers formal establishments employing five or more workers — a design that, if anything, biases the findings toward an understatement. Evidence from establishment censuses that include micro and informal firms suggests that these firms are disproportionately prevalent in Sub-Saharan Africa and exhibit even flatter employment growth over their lifetimes. Abreha et al. (2022), using census data from Rwanda, Ghana, and Cameroon, confirm this pattern. Including the micro and informal sector would drag down average employment ratios for SSA cohorts without a comparable effect in high-income economies, where this sectoris far smaller. The WBES-based estimates should therefore be read as a lower bound of the broader “firm scaling gap.”

Conclusion

A firm’s lifecycle is the economy’s growth engine expressed in a microcosm. When firms do not grow, workers do not move from low- to high-productivity jobs, the gains from learning and scale go unrealized, and aggregate productivity stagnates.

Sub-Saharan Africa’s firm lifecycle is unusually flat relative to both high-income and other developing-economy benchmarks — and that flatness is costly. Meeting the continent’s employment challenge will require not only more firm entry but a business environment in which most productive firms can actually scale up.

That means reducing the “tax on growth” embedded in distortions and uneven enforcement, building managerial capability, and lowering the costs of reaching larger markets—domestic and foreign—so that successful firms can scale fast enough and significantly impact jobs.