Phil Mnisi: Impact of financial friction on innovation and entrepreneurship in developing economies

Public lecture by Mr Phil Mnisi, Governor of the Central Bank of Eswatini, at the University of Eswatini (UNESWA), Kwaluseni, 28 August 2024.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Central bank speech  | 
29 August 2024

Introduction

It is an honour for me to be invited by the University of Eswatini (UNESWA) to deliver a public lecture on the "Impact of Financial Friction on Innovation and Entrepreneurship in Developing Economies". There is no doubt that finance is important for economic development; however, financial frictions are prevalent in developing economies (Erosa, Fuster and Martinez,2023). Recent cross-country literature indicates empirical micro evidence of financial frictions from developing countries, with both small and big firms showing evidence of being financially constrained (Kaboski, 2023). Given the subdued economic growth in a lot of developing economies, it is important to address today's topic to contribute towards the reduction of financial friction to promote innovation and entrepreneurship.

First, I will briefly allude on financial friction, innovation and entrepreneurship before proceeding to major highlights on global and reginal developments as they relate to the subject matter. I will then move on to explain how financial frictions affect innovation and entrepreneurship, and then close the lecture with recommendations towards alleviating financial frictions. Financial friction refers to the impediments or obstacles that hinder the smooth flow of capital within an economy (Hasan et al.,2023). According to Claessens, Ueda and Yafeh (2010) financial frictions have been identified as key factors affecting economic fluctuations and growth. Financial frictions affect how resources are allocated, the health of the financial systems and the rate of economic expansions (Hasan et al.,2023), hence the need to address these frictions.