Contract flexibility and dispute resolution in African manufacturing

Abstract

This article examines the contractual practices of African manufacturing firms using survey data collected in Burundi, Cameroon, Cote d'lvoire, Kenya, Zambia, and Zimbabwe. Descriptive statistics and econometric results are presented. They show that contractual flexibility is pervasive and that relational contracting is the norm between manufacturers, their suppliers, and their clients. The existence of long-term relations between firms helps them deal with contract non-performance through negotiation. Confrontational methods such as lawyers and courts are used only by large firms and when negotiations fail. Whenever confrontation can be avoided, business is resumed. Of the six studied countries, incidence of breach and the use of lawyers and courts are highest in Zimbabwe which is also the country with legal institutions that best support business. Our favoured interpretation is that good legal institutions incite firms to take more chances, thereby encouraging trade and leading to more cases of breach and more recourse to courts and lawyers. A high frequency of contract non-compliance should thus not be interpreted as a sign of imperfect legal institutions.

Institutional obstacles to African economic development: State, ethnicity, and custom

“…Also, firms buying from family and friends encounter more late delivery problems (Bigsten et al 2000). Involving relatives in business is, therefore, considered to be "the surest way to go out of business", while selling on credit to relatives and neighbours amounts to "signing the death warrant of the firm" (Fafchamps 2004, 173).…”

Exporting Raises Productivity in Sub-Saharan African Manufacturing Plants

“…A bill of lading is one institution that facilitates this practice by exporters. Once the goods are shipped off to 28 See Bigsten et al (2000b). to be some selection into the export market based on these "problem" variables, but not a strong effect.…”

Institutions, Trade Policy and Trade Flows

“…Bigsten et al (2000), for instance, describe how the absence of an efficient legal system hinders interaction between manufacturing firms in a number of African countries and potential foreign importers. The authors examine the contractual practices of African manufacturing firms using survey data collected in Burundi, Cameroon, Côte d'Ivoire, Kenya, Zambia and Zimbabwe.…”