Transcript African Entrepreneurship

NS4301
Summer 2015
Entrepreneurship in Africa
Overview
• “Africa: Local Private Sector is Struggling to Grow,”
Oxford Analytica, June 4, 2014
• Scenarios about the raising of home-grown divers of
sustained, inclusive growth in SSA emphasizes two
related factors
• Entrepreneurship – a quality that tends to be attributed the
region’s young, growing populations
• The role of smaller and medium-sized enterprises (SMEs)
• Policymakers increasingly look to SMEs as the most
promising or desirable vehicles for increasing the
domestic tax base and urban job creation rate
• Consequently, greater attention is being paid to factors
affecting business initiation and growth in the region.
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African Entrepreneurship I
• Much of the research on African entrepreneurship
undertaken by the Global Entrepreneurship Monitor
(GEM)
• The GEM looks at entrepreneurial
• Activity – attitudes and
• Framework conditions.
• GEM describes SSA as undergoing an entrepreneurial
revolution with SSA becoming a business development
“mecca”.
• Problem – policy making in this field tends to be marked
by weak empiricism over entrepreneurial objectives
together with links between entrepreneurial actions and
governmental policies
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African Entrepreneurship II
Positive attitudes
• GEM’s surveys of attitudes and intentions suggest that
rhetoric about SSA entrepreneurialism has a sound basis
• A high average (70%) of SSA respondents perceived the
existence of good opportunities for starting a business within the
next six months
• A high average (76%) perceived that individuals have the
necessary skills to start and maintain a business (South Africa
was an exception at below 40%).
• 53% claimed an intention to pursue a business opportunity within
the next few years (South Africa and Ethiopia lagged at 12% and
24% respectively)
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African Entrepreneurship III
• The average SSA rate of total early-stage entrepreneurial
activity (TEA, the percentage of adults who are starting or
have just started a business) was:
• Zambia (28%)
• Ghana (37%)
• Nigeria (35%) and
• Angola (32%)
• South Africa was the SSA exception at 7%
• These levels are well above global averages
• Only 24.5% of SSA respondents – the lowest globally—
indicated that fear of failure would prevent them from
attempting to start a business.
• GEM – attitudes favorable for SME development in SSA
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African Entrepreneurship IV
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African Entrepreneurship V
Intentions and Motives
• GEM analysis a start, but problems
• High TEA scores typical of economies with low GDP per
capita, but a significantly higher proportion of activity in
such setting best described as
• Necessity driven or
• Survivalist entrepreneurship
• SSA’s adverse conditions may well form
entrepreneurship that is materially different from
traditional Schumpeterian entrepreneurs
• Also GEM respondents may have only had an informal,
Micro-level business in mind, not a fully-registered SME
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African Entrepreneurship VI
• GEM’s data suggest wide (ten-fold) gaps between high
TEA rates and low established business rates
• Far more self-identifying entrepreneurs than small formal
business owners
• Gap suggests that SME activity neither matures or contributes
significantly to job-creation
• Much research is needed on whether new firms are failing
or simply not attempting to grow
• Positive attitudes towards SME creation and expansion
are an economic asset to any society
• Necessary condition for developing stronger internal
growth
• However not sufficient for this purpose
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African Entrepreneurship VII
Stubborn Constraints
• Potential SSA entrepreneurs and SME owners face
significant barriers to scaling-up their activities
• Barriers include:
• Poor financing availability or suitability (especially for the missing
middle between micro-finance and conventional bank-business
lending
• Poor electricity supply
• Regulatory or bureaucratic hurdles
• Taxation, extortion or other incentives to remain small and/or
informal and
• Labor and productivity costs that are higher for SSA – relative to
GDP per capita than in other regions
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African Entrepreneurship VIII
• A 2014 CGD report showed that SSA has the world’s
highest share of small firms that
• Are not employment intensive, and
• Have the lowest relative density of larger, more productive and
efficient firms.
• Problem: Many SSA governments appear to approach
SMEs (and the informal sector)
• As targets for diversifying the tax base
• Rather than fostering flourishing SMEs
• CGD’s report found only 40% of the factors behind SSA
firms stunted growth were ones that could be alleviated
by implementing conventional reforms
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African Entrepreneurship IX
• CGD report suggested that less tangible factors such as
distrust inhibit business initiation and expansion
• Example restricting employment to family members
• If so under researched cultural attitudes may explain
optimism about SSA’s potential entrepreneurs and
business owners yet help explain the sector’s weakness
Assessment
• Cultural factors in Africa may be at heart of constraints to
scaling up local formal sector SME initiation and
expansion
• Important to draw distinctions between necessity driven
entrepreneurship and the more promising opportunity
focused business innovation
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