The programs call for eliminating foreign exchange, trade, and investment restrictions, encouraging fiscal responsibility and improving agricultural methods, and privatizing state owned enterprises. Despite the unpopularity of these programs and their subsequent political management problems (Bery, 1990; Herbst, 1990; Rodrik, 1990), the reforms have forged ahead and are transforming these economies to ones driven by market forces.

This study seeks to determine the extent of operating economic environmental reforms and the performance implications of the reforms. Results were investigated based on the perceptions of the managing directors of major manufacturing corporations in Nigeria, Ghana, Zambia, Kenya and Uganda. Given that these reforms have been in place for five to seven years, it seems an appropriate time period to begin assessing their impact from the firm perspective. Already, some studies detailing the macroeconomic results have been published (e.g., Madarassy, 1990; Nsuoli, 1993), but few have sought managerial opinions in a comparative manner.

Each beneficiary country, with the assistance of the IMF and the World Bank, develops and updates a medium term policy framework for a three year period (IMF Survey, 1992). Common features of the economic reform programs include floating of currencies, eliminating controls on trade (Gillespie & Alden, 1989), instituting investment incentives (Okoroafo, 1990), and privatizing state owned industries (Mengistu & Haile-Mariam, 1988; Ramamurti, 1992). Some of the details of each country's program will be discussed next (see also Appendix A).

Nigeria

With a population of about 95.2 million, a gross domestic product (GDP) of U.S.$31 billion in 1990, and a GDP growth rate of 1.3 percent (real terms) in 1995 (NTDB, 1996), Nigeria has pursued its SAP with determination since mid-1986. Significant changes were made in its exchange rate policies, trade and investment policies, and taxation and spending patterns. In the exchange area, its local currency (Naira) was exposed to market forces in two stages. First, a parallel exchange rate system (a market determined rate and a government rate used specifically to service external debt obligations) was established. Subsequently, in March 1992 both systems were merged into a market determined system (FET, 1992a). Currently, a parallel exchange system is back in place with the official exchange rate being Twenty-two naira (its local currency) to the dollar (NTDB, 1996) while the market determined rate is eighty naira to the dollar.

Trade constraints were also eliminated. The use of import licenses for all imports was eliminated, while restrictions on local items such as ornaments which had been previously banned from exportation were removed (Okoroafo, 1993). For instance, duties on automobile spare parts and completely knocked down components, which were as high as 185 percent were reduced to 25 percent (Business Times, 1988). Price controls were lifted and agricultural marketing boards disbanded. Investment incentives, such as a one-stop office to expedite investment proposals, were established. Also, investors in new industries, industries producing for exports, or industries expanding production in vital economic sectors (i.e., manufacturing, food processing, and agriculture) were exempt from corporate income taxes during their initial three years of profitable operations (Buchmiller, 1988).

Although the Nigerian government is taking a low key approach, it's privatization program has resulted in the sale of a key parastatal, the Nigeria Flour Mills. In addition, the Nigerian government has sold 40 percent of its ownership in its sole oil company, the Nigerian National Petroleum Corporation to private interests (Okoroafo & Russow, 1993; Archibong, Ugboro, & Anyansi-Archibong, 1991). According to a World Bank source, by the start of 1992, more than 70 of the 110 public enterprises targeted for privatization have been sold to private investors (World Bank, 1992). It now has plans to lease enterprises such as sugar, paper, steel, and fertilizer (NTDB, 1996).

Ghana

Ghana had a population of about 15.9 million (NTDB, 1996) and an estimated per capita GDP of U.S.$400 in 1990 (Kapur, I., Hadjimichael, M., Hilbers, P., Schiff, J., & Szymczak, P., 1991), although its reforms began in 1983. Known as the Economic Recovery Program, its objectives were to (i) move away from direct controls on trade, (ii) restore fiscal and monetary discipline (iii) make institutional reforms and (iv) expand private investment. Its exchange rate reforms mirror those of Nigeria, with the initial establishment of a two-tiered system. Following periodic devaluations between 1983 and 1986, and the establishment of foreign exchange bureaus in 1988 to buy and sell foreign exchange at market determined rates, the two systems were unified in April 1990 (Kapur et al., 1991). Non-tariff import restrictions have been eliminated such that only two documentary forms are now necessary: an import declaration statement and a tax clearance certificate. Pre-shipment inspection is done by Societe Generale de Surveillance (SGS) for items valued over U.S.$5000 (FET, 1991a). Most products can be imported, with the exception of beer, cigarettes, and cement pipes which are either prohibited or still restricted by high import excise taxes. A one-stop center, Ghana Investment Center processes all investment ventures, except in mining and petroleum. In addition, incentives were offered for priority sectors such as agriculture, manufacturing, construction, and tourism. The recently elected government has affirmed its desire to stick with the reforms (NTDB, 1996).

Uganda

Uganda's 1995 population was estimated at 18 million with a per capita GDP of U.S.$243 (NTDB, 1996). Its Economic Rehabilitation Program was launched in 1987 and appears to be less radical than those of Nigeria and Ghana. However, some elements of its program include movement towards privatization, establishment of less cumbersome procedures for investments, a more market driven exchange rate system, and trade reforms (FET, 1992b). Burdensome documentation and approval have been streamlined for investors. Protection from expropriation is provided for targeted industries such as fish processing, mining, and steel.

Kenya

Kenya had a nominal per capita GDP of U.S.$377.9 and a population of 25.3 million in 1994 (NTDB, 1996). It structural reform program started in late 1987, involving the phased introduction of agricultural, financial, industrial and parastatal reforms (FET, 1990). In the agricultural sector, it has implemented organizational and financial reforms of its agricultural marketing parastatals and pursued a more liberalized fertilizer distribution system. In the financial area, it has implemented a more flexible exchange rate system. Also, it has introduced some import liberalization rules, and tax reforms measures to promote exports.

The changes in the Kenyan economy can also be viewed through the written comments of some of the survey respondents. One respondent described the changes as resulting in "turbulence, insecurity and uncertainty" The privatization process is "slow" and somewhat discrete but continuing under opposition from beneficiaries from the old system (e.g., political appointees that headed government parastatals). Greater efforts are being made to collect taxes due and at a higher rate. The increased significance of foreign exchange has encouraged Kenyan firms to "chase export markets". Although, there was some regression in implementing reforms in 1994, overall its program has been "significant and positive" (NTDB, 1996).

Zambia

With a population of 8.9 million people and a real per capita GDP of U.S.$381 in 1990, Zambia started its reform efforts in late 1988. These involved fiscal discipline, tight money policies, a gradual privatization of Zambia's parastatal structure, a reform of the civil service, and the diversification of exports (FET, 1991b). Current privatizations scheduled include the telephone monopoly, electric utility, copper mines, hotels, forest plantations, etc. (NTDB, 1996). Further, it has decontrolled price, systematically devalued its currency, and instituted a tight monetary policy. A dual exchange system was set and almost all goods can be imported under an open general license.

Structural Economic Reforms and Macroeconomic Performance

Transitional economies such as those under study are moving away from significant government control of economic activities to market control. However, despite their ambitious reforms, elements of a government dominated economy still abound.

The consensus about macroeconomic policies necessary to create a more attractive economic climate mirror those suggested by the studies discussed below. For instance, Agodo (1978) suggested numerous factors that influenced a market's attractiveness: expected rate of return, gross domestic product per capita, population, and the presence of necessary raw materials, political stability, primary infrastructure and development planning.

Root and Ahmed (1978) sought to determine which of six policy variables were significant discriminators among countries of varying attractiveness levels. Greene and Villanueva (1990) identified performance measures such as market growth rates, real per capita growth rates and interest rates as being vital. The results of economic reforms in terms of these measures will be discussed next.

A number of studies have provided empirical evidence on recent performance resulting from the reform policies. Most studies report positive results, but a few point to destabilizing outcomes. For instance, Humphreys and Jaeger (1989) looked at the export earnings, financial flows, terms of trade and capacity to import of sub-Sahara African nations and reported improvements in the past 15-20 years. This is particularly true when countries are disaggregated into those implementing and not implementing reforms. Also, Madarassy's (1990) study of thirty developing countries during the 1970-88 time period found improvements in private investment flows as a percent of GDP since 1985.

Nsuoli (1993) evaluated SAF/ESAF arrangements in thirty sub Sahara African countries during the program period relative to the three year pre-program period. He found an improvement in growth performance and reduction in inflation in nearly two-thirds of the cases, improvement in external current account in nearly two-fifths of the countries and an increase in international reserves in over two-thirds of the countries. Another positive effect is a reduction of stabilization of their ratio of gross external debt to merchandise exports.

According to a U.S. Department of Commerce report (NTDB, 1996), Uganda's program has resulted in (i) a sharp drop in inflation (ii) a better managed government budget, (iii) better exchange regime and (iv) reduced debt burden.

Another set of results indicate some negative impacts. Some critics have pointed out the destabilizing effect of the reforms which have resulted in civil unrest and coups (Wanneski, 1990; Fosu, 1992). For instance, Nigeria's program has resulted in tremendous hardships to its population and have caused numerous civil unrest. Zaire's program was suspended following significant domestic unrest.

Based on the aforementioned relationships, the first hypothesis was developed. 

H1: Structural reform policies (e.g., trade liberalization, privatization, etc.) will result in beneficial outcomes (e.g., better infrastructure, more opportunities, better competitiveness, etc.) to the conduct of business.

Firms stand the best chance of better performance when an economy is performing well. It therefore follows that postulates as to firm performance can be hypothesized by referring to normative and positive impacts of the reforms.

The primary objective of economic reforms is to introduce policy measures that will reverse the deterioration in firm competitiveness and economic conditions (Gulhati, 1990). For many African countries, their economies had become stagnated because of maladies such as high debt, inefficient public enterprises, overvalued currencies and declining terms of trade. To ameliorate these problems, policies which re-orient economies from central government control to market control have often been suggested.

Lowering or eliminating foreign exchange restrictions will result in a lower currency value making domestic firms more export competitive while attracting foreign firms due to the lower cost of conducting business. Such lower currency value could be detrimental (in terms of higher prices) to domestic and foreign firms that source from foreign suppliers. However, the adverse impact may be mitigated if domestic firms identify and use local inputs, thus increasing domestic activity.

Privatizing public firms exposes them to the efficiency standards of private firms. To survive they would have to pursue efficiency enhancing strategies. Initially, more productive equipment will be acquired and inefficient inputs (including labor) disposed. Ultimately, firms that survive will be more efficient and probably enjoy better performance. Okoroafo (1993) found that some environmental changes (e.g., liberalized financial environment) positively influenced firm performance. Although, Steel and Webster's (1992) study focused on small enterprises in Ghana, its finding that "profits were squeezed between rising input costs and weak domestic demand and low-cost competing imports" (p. 423) is somewhat relevant. Also, Mobil has advertised in the Wall Street Journal (1991) proclaiming its success in the Nigerian market. In a detailed analysis, another Kenyan respondent wrote:

(1) Industrial manufacturing sector is highly underdeveloped, causing massive reliance on imports.

(2) Most manufacturing companies are in a seller's market and conditions are very close to a monopoly/oligopoly. Consequently, all cost increases are passed on to customers with no thrust on manufacturing efficiency.

(3) Annual inflation rates exceeds 40-50 % whereas working capital financing is available at 24% per annum, resulting in manufacturing stockpiling raw materials rather than exercising inventory control. New firms cannot enter the market, because the cost of setting up comparable manufacturing facilities at phenomenal high costs makes the project non-profitable.

(4) The local currency, Kenyan shilling has been made fully convertible. The exchange rate against the U.S. dollar, which was around 28 a year ago, is now 60.

(5) SAP has resulted in a drop in customs duties, with the results that imported finished products will be competitively priced, and even the small existing manufacturing base will be bankrupt.

Thus, given what seems to be improving macroeconomic performance the expectation was for a positive impact on firm performance. 

H2: The outcomes of economic reforms will have a positive effect of firm performance (e.g., sales, market share, competitive position, etc.)

Questionnaire

A self administered questionnaire was sent to the managing directors of medium and large manufacturing firms in Nigeria, Ghana, Zambia, Kenya and Uganda. These countries were selected because their intensity of implementing the reform program was high. The instrument comprised sections about questions on changes in environment and performance, and respondent characteristics. The respondents were asked to indicate their perceptions of the effects of recent reforms measures on their environments and performance. Their responses were gathered using a five point Likert scale (5=strongly agree to 1=strongly disagree). The level of significance of each item to firm success was collected using another five point scale (1=very low to 5=very high). Respondents were asked not to bother giving different weights when they perceived all items of equal significance to firm performance. Weighting scores is meaningful since respondents may indicate "disagreement" with a reform's impact (e.g. improved financial infrastructure), but still view that variable as "very critical" to firm success. Information on respondent characteristic (firm size, product, number of employees, sales and assets level, etc.) were also collected. Linguistic equivalence was considered and English the official language for conducting business in all countries was used. Scale equivalence was also verified in light of typical scales used in each country. Concept validity was established using scholars and students from each country in the pretest. Some changes (i.e., currencies and terms such as "states") were made.

Sample

The respondents were chief executives, typically called managing directors, all of which were knowledgeable about the reforms. Their names and addresses were obtained from one or more of the following sources; Moody's International Manual (1991), Directory of U.S. Firms in Foreign Markets (1989), Kenyan Association of Manufacturers (1992) membership directory, Redasel's Companies of Nigeria (1988) and ThisWeek (1989). The respective sample size, number of responses and response rates are as presented in Table 1. The sample size and selection was limited by the need to focus on private manufacturing firms of significance (i.e., sales) in each country.

The response rates, though varied are better than those obtained by other studies using similar samples. For instance, Mitchell and Agenmonmen (1984) sent questionnaires to 200 Nigerian business executives and obtained a response rate of 32.5 percent. In another multi-country study (i.e., Ghana, Kenya, Nigeria, Tanzania, and Zambia), Akaah, Dadzie, and Riordan (1988) obtained a response rate of 33 percent. The high response rate can be attributable to the significance of the reforms to the activities of the respondents and the data collection techniques used. For instance, three separate mailings were done for each country in addition to the use of telephone calls and fax messages to solicit participation and clarify questions from the respondents. Non-respondents contacted by telephone gave reasons such as "busy time schedule", "questionnaire was misplaced" and "company policy of not responding to surveys" for not responding. These reasons suggest that non-response bias is very low. The data were collected between 1990 and 1993.

A t-test difference in means test did not yield any significant differences in responses from the countries, thus validating the insignificance of differences in program content and timing. Thus, pooling the responses for interpretation is appropriate.

In designing this study, great care was taken to ensure its generalizability. Thus, the samples were drawn from many countries and the respondent-variable ratio is 6.04 percent. According to Hair and associates (1979), a minimum sample-variable ratio of 4 or 5 to 1 and/or minimum of 50 observations are desirable for factor analysis. This study with a minimum respondent-variable ratio of 6.04 and 127 observations satisfies the minimum criteria.

Characteristics of Respondent Firms

Half of the respondents were indigenous firms. The other half were subsidiaries of foreign firms headquartered in the United Kingdom (12.6% of subsidiary firms), France (2.5%), South Korea (1.7%), Norway (1%), U.S. (11.8%), Netherlands (1.7%), Switzerland (3.4%), Germany (2.5%), Belgium (1%). Their sales and assets (in U.S. dollar terms) were typically greater than $4 million. The majority (76.9%) of the respondents employed more than 100 employees. Respondent firms manufactured a variety of products including apparel, beverages, chemicals, metals, food, industrial equipment and pharmaceutical.

Operationalization of Variables

The items included in the section on "environment" and identified in Appendix B were derived from various studies such as Agodo (1978) and Austin (1990). The twenty-one items dealt with political risk (Kobrin, 1980; Levis, 1979); commercial, financial, transportation, and communication infrastructure (Austin, 1990); elimination of trade barriers; production cost; foreign competition (Porter, 1990); consumer purchasing power (Johansson 1997); technological skills (Kolde, 1982) and availability of market data (Huszagh, 1984).

The seven performance items in Appendix C are commonly accepted measures of firm performance. They are; sales (Terpstra & Sarathy, 1997), market share (Douglas & Craig, 1983), ability to gain market share (Burke, 1984), sales growth rate, return on investment (Douglas & Craig, 1983), profits and competitive position (McCarthy & Perreault, 1993; LeCraw, 1984).

Data on respondents perceptions of item weight and impact were obtained as interval data, on a five point scale. Both measures were combined by multiplying each item weight by its score. Specifically, the weighted environmental score (WES) was calculated by multiplying the initial environmental item score (E) by the weight of the environmental item (WE). The weighted performance score (WPS) was calculated by multiplying the initial performance item score (P) by the weight of the performance item (WP).

The principal components analysis with varimax rotation was performed on the weighted scores. This rotation uses a conservative method for estimating commonality by means of the squared multiple correlation in the diagonal of the correlation matrix (Jackson, 1983). Cronbach's alpha was computed as a measure of internal consistency of the factors.

The new factors derived from the factor analysis of the environmental model was regressed against performance to determine the significant factors. A separate regression were independently done to examine the impact of changes in environment on performance. This multi-stage data analysis procedure was employed to enable development of a parsimonious model where multicollinearity will not be a problem.

The Predictor Factors-Environment

Most of the items formed factors as anticipated (see, Table 2). For instance, Factor 1 comprised improvements in infrastructural items such as financial (WES1), physical (WES 12), communication (WES14) and transportation (WES15). It was named Infrastructure (Cronbach alpha = .71) since the bulk of the items dealt with enabling people, goods, capital, and information easily relate to each other. Factor 2 (political environment-WES6, government intervention-WES7, trade controls-WES10, tribal linguistic and religious differences-WES11) comprised items that will inhibit the conduct of business or create perceptions of the presence of political risk. Thus, it was called Barriers to Business (Cronbach's alpha =.74). The third factor consists of a potpourri of items favorable (reduced exchange restrictions-WES2, a more active foreign exchange market-WES4), and trade liberalization-WES16) and unfavorable (changing government laws-WES8, increased competition from foreign products-WES17, reduced consumer purchasing power-WES19) to businesses. However, on closer examination most of the items were favorable to foreign businesses rather than domestic businesses. Sharpe and Smith (1976) suggest that items with the highest loadings be considered most important in deriving labels. It was therefore called Foreign Business Advantages (Cronbach's alpha = .59). Increases in costs of doing business resulting from transportation (WES20) and production (WES13) make up factor 4 called Increased Cost (Cronbach's alpha = .65). Factor 5 was referred to as Nationalization. Factor 6 which comprised increased sources for raising capital-WES3 and increased availability of skilled manpower-WES18 was called Increased Factor Inputs (Cronbach's alpha=.51). Finally, reduced cost of capital (WES5) and obtaining market data (WES21) loaded well on factor 7, and was labeled Reduced Cost of Capital (Cronbach alpha=.37).

Regression Results

Table 3 shows the regression results for the environmental model. It can be observed that only one environmental predictor factor-foreign business advantages was significant (.0017) and explained a variance of 13.96 percent only. Hence, the hypothesis of positive impact was not entirely supported. This finding indicates that many environmental outcomes of the reforms programs have not have any significant positive effect on firm performance. Since most countries

have been in operation for at least seven years, it cannot be argued that substantial time has not passed to observe any positive impact.

Based on the tabulated survey results, it appears that the most environmental changes undertaken under the reform programs have not had a positive impact on firm performance. Only the factor foreign business advantages was mildly significant. The findings are not surprising since environmental changes may have caused "uncertainty, insecurity and turbulence". An unknown factor is whether these firms are pursuing the strategies (in marketing, management, finance, etc.) necessary to improve performance. If comments by the Kenyan respondent (quoted earlier) are representative, efficiency strategies may not be pursued.

It appears that inflation has increased due to deregulation of foreign exchange regimes and continued dependence on imports. Firms have in turn passed price increases directly to consumers. Also, one respondent noted that inflation and the cost of capital-inflation differential are causing firms to stockpile raw materials rather than use efficient inventory control methods. Thus, there is little pressure to be efficient.

The reduction of import tariffs and regulations have resulted in greater competition from foreign products (Rao, C., Nwakanma, H., & Kurtz, D., 1995). This supports Gillespie and Alden's (1989) findings that recently liberalized environments provide greater export opportunities for products previously protected by government policies. It is imperative that international firms seeking new markets seriously consider those in countries pursuing reforms. Since foreign exchange and inflation may hamper the ability of buyers in reform countries, prospective firms need to use innovative pricing and entry arrangements.

The subsequent decline in local currency values and the scarcity of foreign exchange has forced domestic firms to go after export markets, although it is not clear how competitive their products can be in foreign markets. Evidence of successful export strategies can be drawn from the experience of firms in Central America (Dominguez & Sequeila, 1993) and Brazil (Christensen, DaRocha, & Gertner, 1987). The response from multinational firms was noted by Vachani (1990). In addition, it is not clear which export markets (e.g., developed, developing) are being targeted. This emphasis on exports (boom) is consistent with results in other non-African reform countries such as Mexico (Madarrassy, 1990) and Chile (Wall Street Journal, 1993).

It is probably too early to draw policy implications without further confirmation of these findings and identification of causal factors responsible for the poor performance. There are still other intervening variables such as brain drain, skill level, poor commercial, or media, or physical infrastructure, inappropriate or ineffective execution of strategies, etc. which may be more responsible for the current results.

Further Research

This study can be replicated using another sample base. For instance, in Africa, many French speaking countries (e.g., Ivory Coast) are also implementing reforms. Further, other variables related to firm strategy in the say, marketing, management, finance, etc. areas can be introduced in the model. Also, the foreign markets targeted for exports and associated strategies can provide further insights to firm response. Finally, further comparative studies using more variables, and differentiated according to degrees/types of reforms per country/region.

Note: All items are measure on a 5-point Likert scale (Strongly agree= 5 to 1 = Strongly disagree). In addition, the significance of each item to firm performance was measures using another 5-point Likert scale (Very high = 5 to 1 = Very low). The two scales were subsequently multiplied to derived the composite scores used in the Factor analysis.

Note: All items are measure on a 5-point Likert scale (Strongly agree = 5 to 1 = Strongly Disagree). In addition, the significance of each item to firm performance was measures using another 5-point Likert scale (Very high = 5 to 1 = Very low). The two scales were subsequently multiplied to derived the composite scores used in the Factor analysis.