By Nomawethu Moyo – DRG Writer
Over the past two decades, development economics has increasingly emphasized the importance of promoting entrepreneurship as a strategy for growth among emerging economies. However, entrepreneurship is still not a public priority in many African countries, and the lack of well-established entrepreneurship ecosystems and an entrepreneurial culture has limited development on the continent. Although various factors influence economic growth, this article argues that entrepreneurs are potentially one of the leading drivers of development, and African governments should be doing more to support them. In the context of this article, entrepreneurs are individuals who assume greater than normal financial risks in creating formal startups, with the intention of growing them into larger more profitable businesses.
In general, three challenges common to emerging African nations make entrepreneurship a particularly appealing strategy for development: 1) failure to provide employment opportunities for youths aged 15 to 34 years, e.g., South Africa’s youth unemployment rate was 38.2% after the first quarter of 2018, while 52.65% of youths in the Nigerian labor force at the end of 2017 were unemployed; 2) rapid population growth resulting in a youth bulge amidst already limited opportunities (read more on the demographic dividend here); and 3) slow economic growth due to over reliance on natural resource exports despite declining commodity prices (Acheampong, 2016). These problems create a unique opportunity for African governments to leverage the human capital of youths through entrepreneurship, which would result in job creation, higher production, and upward social mobility (Bianchi, 2010). In addition, the poor quality of life will likely motivate a lot of African entrepreneurs to build startups aimed at improving living standards, e.g. providing better access to energy and improving service delivery, which would contribute to creating a more productive workforce and even more economic growth (Charrada, 2018).
To understand what constitutes a quintessential entrepreneurial ecosystem, we can glean from lessons learned by countries with a high Global Entrepreneurship Index. At a minimum, successful entrepreneurial ecosystems comprise stable political and economic climates; conducive policies; regulations that streamline business procedures; research institutions and human capital; public and private financing; markets; incubators and accelerators; subsidized infrastructure like office space; and a strong culture of entrepreneurship (Charrada, 2018). These components are hardly effective if implemented in isolation; therefore, governments need to develop holistic strategies to cultivate an entrepreneurial culture and provide emerging entrepreneurs with a synthesized package of support throughout their growth. In addition, effective ecosystems lead to self-sustaining entrepreneurship, whereby the most successful entrepreneurs contribute to generating more entrepreneurs as venture capitalists, consultants, and advocates for more favorable policies (Isenberg, 2011). In the long run, this would lower the level of effort governments need to invest in entrepreneurship.
Developing African economies exhibit a wide spectrum of attitudes towards entrepreneurship. For example, Tunisia has created one of the most conducive entrepreneurial climates in Africa, and the recent proliferation of startups in this country has attracted international attention. The Tunisian government invested in business and investment strategy education programs to spark interest in entrepreneurship, created financial mechanisms for startups, and set up accelerators that mentor entrepreneurs (Souli, 2018). In April of 2018, Tunisia implemented the Startup Act, which provides additional grants, and incentives like tax exemptions and salary compensation for startup founders (Quillen, 2018). To date, Tunisian startups have succeeded in decentralizing service delivery; employing a disproportionately larger share of youth, women, and the disabled–individuals who were previously excluded from labor markets; and providing higher-quality jobs (World Bank, 2017). Despite all this progress, the fear of political instability still presents disproportionate risks to Tunisian entrepreneurs and the government is increasing efforts to address that challenge and support youth entrepreneurship (Moreau, 2016).
In addition to Tunisia, a few other African countries have also made headway in the entrepreneurship realm. South Africa has cultivated a strong culture of entrepreneurship, emphasizing merit and opportunism, while providing various government-led support programs and funding, especially for tech entrepreneurs (OC&C, 2018). However, South African entrepreneurs still struggle with limited investment, poor intellectual property protections, and inflexible labor laws (Mgwili-Sibanda, 2018). Similarly, Rwanda has robust policies and government initiatives that have succeeded in increasing the ease of doing business for startups, but the high cost of resources like transport and electricity presents significant challenges to some entrepreneurs (Thakkar, 2016). Although there is room for improvement, these government-led efforts have enabled these nations to establish a solid foundation for future entrepreneurial growth.
On the other hand, some African countries are doing very little to leverage rapid economic growth and the untapped potential of unemployed youth in promoting entrepreneurship. For example, Ethiopia’s gross domestic product has more than doubled in the past decade, yet the country has failed to provide decent youth employment, start-up financing, and business skills programs (Shibru, 2017). Ethiopia also has heavily regulated markets and onerous administrative policies that deter entrepreneurship. Ethiopia’s Development Cooperation has noted some of these challenges; they are working on improving youth and women’s access to start-up financing, but the results are yet to be seen (Shibru, 2017).
Another country with untapped entrepreneurial potential is Zimbabwe, where communities are rife with informal small businesses and self-employed individuals battling high unemployment rates, but the government does very little to harness this human capital. Entrepreneurship remains a periphery of policy implementation in Zimbabwe, yet it could be the panacea for a subset of the country’s problems. Beyond the lack of a holistic, coordinated government-led effort to build an entrepreneurship ecosystem, Zimbabwean entrepreneurs face a hostile business climate plagued by corruption, bureaucracy, and extremely high costs of debt. Although Zimbabwe has a high quality education system, the country’s research institutions are grossly underfunded, while low tertiary enrollment and brain drain limits human capital development. In short, aspiring entrepreneurs in Zimbabwe face a plethora of problems from the onset, which often lead to the decision not to pursue entrepreneurship. Zimbabwe is undeniably overwhelmed by socioeconomic problems ranging from limited access to medical care, to an ailing fiscal policy, but the country is losing out by not setting up a robust entrepreneurial ecosystem that will boost the economy, mitigate unemployment, and potentially come up with creative solutions to challenges like the current liquidity crunch. The government needs to take steps in coordinating a multi-stakeholder effort to build a comprehensive entrepreneurship strategy tailored towards specific socioeconomic challenges, and flexible enough for all types of entrepreneurs to benefit and contribute to economic growth.
Historically, African governments have considered entrepreneurship as just a small component of the economy, as evidenced by a lack of a dedicated ministry on entrepreneurship and innovation, yet entrepreneurs are playing an increasingly important role in development–creating jobs, generating income, and addressing social challenges. Entrepreneurship will not resolve development challenges overnight, but if more governments establish and nourish entrepreneurial ecosystems with the appropriate skills development programs, flexible regulatory frameworks and support, Africa will realize faster and more inclusive economic growth.
Image cc: Samuel Zelle (unsplash)