Technical Efficiency Of Manufacturing Enterprises In Rwanda

Abstract

Manufacturing is widely perceived as one of the economic drivers for transformation from low to high productive activities through task-based production among the developing countries. It allows diversifying economic activities and bears the potential for significant value addition in many of the Sub-Saharan Africa economies. The sector is however still facing major challenges such as infrastructural inadequacies, the lack of skilled labour force, limited and stagnant of market demand and inefficient allocation of resources. This sector also faces insufficient technological innovation and failure to capture most of the downstream value-added to its resources-based products. Using the Rwanda Enterprise Census, (2017) firm-level data that covers 14,013 manufacturing enterprises in Rwanda, this study sought to lay out empirical findings on the determinants of technical efficiency among the manufacturing enterprises in Rwanda. The study employed the Maximum Likelihood Estimation approach and the stochastic frontier model to estimate technical efficiency and determinants of technical inefficiency among the manufacturing enterprises in Rwanda. The results show that the enterprise’s age, formal status and R&D activity are statistically significant and have a positive effect on technical efficiency. Micro and small enterprises are positively associated with technical efficiency while medium and large enterprises are both negatively associated with technical efficiency in the Rwandese-manufacturing sector. In addition, direct or indirect export status and domestic ownership status have a positive but insignificant effect on technical efficiency. However, foreign technology adoption has a negative and insignificant effect on technical efficiency of manufacturing enterprises in Rwanda. Further, typical enterprises are found to be operating at about 48 % below their maximum potential output level in the manufacturing sector in Rwanda.