Africa boasts of the world’s highest entrepreneurship and female entrepreneurship rates. However, while entrepreneurial potential is high, the contribution to economic growth has been limited. The big question is: Why?
Crunching the Numbers
According to the African Development Bank, 22 percent of Africa’s working-age population are starting businesses. This is the highest entrepreneurship rate in the world.
Africa’s female entrepreneurship rate is also the highest in the world; 27 percent of the female adult population is engaged in early-stage entrepreneurial activity. This means African women are twice as likely to start a business as women elsewhere in the world. Small and Medium Enterprises are now the biggest formal employers in Sub-Saharan Africa and will undoubtedly be key in creating the 54 million jobs that Africa is expected to create by 2022.
The numbers look great until one realizes that Sub-Saharan Africa also has the highest small business discontinuance rate of 8.4%. While the job creation potential is promising, it is a far cry from the demands – Africa will need 122 million new jobs by 2022. Further, only 20 percent of African entrepreneurs are introducing new products and services. Africa has a lot of survival entrepreneurs who were pushed into entrepreneurship by unemployment.
African women make up the majority of entrepreneurs on the continent yet their businesses are generally less profitable and provide fewer jobs than those of males. Africa is sitting on potential. This problem, according to Amanobea Boateng, is traceable to the gendering of work and marginalization of women from the mainstream economy during colonization. Quoting from Edoho, Boateng states, “African women represent a vast reservoir of entrepreneurial potential, talents, and doggedness that could ignite industrial renaissance and anchor a pathway of sustainable growth.”
Therefore, even though 34.8 percent and 34.6 percent of women in Uganda and Botswana respectively will start businesses, they will do so as industry outsiders battling for subsistence. The problem is global. Men account for 92% of partners in the top 100 venture capital firms and unsurprisingly, only 2% of female-founded businesses receive venture capital. However, African countries cannot sit back and revel in the company of nations whose economies are not dependent on female empowerment. For the African entrepreneurship boom to translate to sustainable and scalable development, gender inequality has to be decisively dealt with. Gender equality is an imperative rather than an option in Africa.
External Operating Constraints
The 2017 African Economic Outlook report listed issues that have been known to suffocate small businesses. These are limited access to finance, unstable and costly access to electricity, political instability, high tax rates, corruption, and customs and trade regulations. It is clear that governments have a critical role in creating supportive environments for entrepreneurs to grow in key economic sectors. An elementary starting point is creating holistic and action-oriented entrepreneurship policy frameworks. A number of countries including South Africa, Russia and Chile have also introduced start up programs while others now have scale-up policies. These deliberate efforts to empower small to medium enterprises when coupled with the strides the continent has made in effecting ease of doing business reforms will go a long way in making the entrepreneurial environment more robust.
Lack of Innovation
The African Economic Outlook, 2017 stated that entrepreneurs driven by opportunity are more productive and innovative. Unfortunately, 7 percent of Africa’s working age population are survival entrepreneurs who “would contribute more to growth if they were in the formal labor market”. These entrepreneurs are pushed into starting businesses because of unemployment or underemployment. Such entrepreneurs are accused of having limited potential for growth, reducing the number of capable workers and diverting resources more productive entrepreneurs could exploit and sending wrong signals about the returns on education.
This position is, however, debatable; a study by Michael Adusei of 12 African countries proved that even replicative entrepreneurship (which survival entrepreneurs primarily engage in) is instrumental to economic growth. The matter is fat from straightforward. However, an uncontentious conclusion can still be drawn: governments should not subsidize unproductive entrepreneurship whether it is driven by opportunity or survival, innovation or replication.