publication March 26, 2019

Eliminating Gender Disparities in Business Performance in Africa: Supporting Women-Owned Firms

World Bank Group



STORY HIGHLIGHTS

  • According to a new World Bank report, women entrepreneurs make or are obliged to make different decisions than men because of gender-specific constraints
  • As a result, the report notes that, on average, women-owned firms post profits that are 34 % lower than male-owned firms, and have fewer employees and lower sales
  • The report identifies strategies to address these constraints, including psychology-based skills development programs to encourage more entrepreneurial mindsets, supporting women with savings mechanisms and providing large capital grants as part of business plan competitions

WASHINGTON, March 26, 2019 – While women entrepreneurs are a vital and vibrant source of economic growth across Sub-Saharan Africa, a new World Bank analysis shows that women-owned businesses consistently perform worse than businesses owned by men due to gender-specific limitations.

Drawing on a wealth of new, high-quality household and firm-level data from multiple countries, Profiting from Parity: Unlocking the Potential of Women’s Businesses in Africa shows that women entrepreneurs face constraints such as social norms, unequal legal frameworks, and differences in education, resources, assets and networks. These factors negatively influence decision making, the report notes, hurting women’s business performance and stunting economic growth. While gender gaps vary widely, the report finds that on average, these constraints cause women entrepreneurs to have lower profits, fewer employees, and lower sales.

“While entrepreneurs across the continent face a variety of constraints to starting, operating, and growing their businesses, the extent of the challenges facing female entrepreneurs is even greater,” said Hafez Ghanem, Vice President for the World Bank’s Africa Region. “By focusing on alleviating the specific constraints confronted by female entrepreneurs, governments can not only improve the business enabling environment, but also broaden the benefits of private sector development.”

Based on this analysis, the report offers decision makers a menu of options and evidence-based guidance on designing programs to target multiple constraints and improve the performance of women entrepreneurs. The report highlights several areas as promising to empower female entrepreneurs, including:

Facilitating access to capital

Drawing on data from 14 impact evaluations, the report finds that capital investment is more than six times higher in the average male-owned firm than the average female-owned firm.  Women’s ability to finance their business activities is also undermined by the additional pressures they face (relative to men) to spend their income on domestic needs.

Rigorous evidence shows that supporting women with secure savings mechanisms and providing large cash grants as part of business plan competitions help to promote savings and relax capital constraints among female-owned, growth-oriented firms. Other promising interventions recommended for additional study include strengthening women’s land tenure rights to increase their access to collateral and introducing financial innovations that reduce collateral requirements.

Supporting women entrepreneurs to develop the right skillsets

Women are less likely than men to use certain business practices associated with firm profitability. Differences between women and men in formal education, management skills, and socio-emotional skills likely influence women’s business decisions and contribute to the performance gap. Training programs that apply lessons from psychology to encourage women to act with an entrepreneurial mindset have had positive and significant effects on sales and profits of male and female-led micro-enterprises, according to evidence from several impact evaluations. Addressing socio-emotional skills and providing gender-specific content have proven effective in numerous contexts in Africa—in ways that standard managerial training programs have not—and notably pay for themselves in increased profits over the long-term. 

Ensuring social norms do not act as constraints to growth

Social norms influence the strategic choices that female entrepreneurs make, such as their sector of operations. Women tend to operate in traditionally female-dominated sectors, even though male-dominated sectors tend to be more lucrative, and women who “cross over” into male-dominated industries tend to earn as much money as men do.

Emerging evidence suggests that sharing information with women on expected returns in traditionally male-dominated sectors and providing women with early exposure to these industries in the form of apprenticeships and male role models could help induce women to cross over into higher-return, male-dominated sectors.

“As evidence shows, when women can work and run businesses, the benefits encompass children, communities and economies. Sub-Saharan Africa is the only region where women make up the majority of entrepreneurs, yet there is much to do. This report provides a roadmap of policy actions that I hope governments will take to empower women and lead African societies and economies to greater prosperity,” said Ceyla Pazarbasioglu, Vice President for Equitable Growth, Finance and Institutions at the World Bank Group.

Profiting from Parity: Unlocking the Potential of Women’s Businesses in Africa was produced by the World Bank Group’s Africa Gender Innovation Lab and the Finance, Competitiveness and Innovation Global Practice.