15 January 2013

Africa: Subsistence Must Not Be Confused With Entrepreneurship

Photo: Stuart Price/UN
A market vendor in Southern Somalia.


Few agents are as critical to an economy's success as entrepreneurs.

The businesses they run are essential for innovation, private sector development and job creation, and it is a pronounced entrepreneurial spirit across Africa which is commonly cited as a reason for optimism about the continent's development potential.

Driving through congested urban centres such as Lagos, Nigeria or Nairobi in Kenya, it is easy to see where the impression comes from. A stunning array of improvised businesses throng the streets - from makeshift car washes to market stalls and hawkers selling household goods.

Traffic jams are an economy unto themselves. None but the cars are still, with everyone toiling tirelessly to turn a profit - many running several ventures at the same time. On the surface, this may look like a form of hyper-entrepreneurship.

Yet to extrapolate from this that Africans have an unusual propensity towards risk-taking may be romanticising a generally adverse situation. A new generation of entrepreneurs is emerging, but their numbers may be much lower than is sometimes assumed.

Quantifying entrepreneurship on the continent is impossible due to the paucity of available data. Yet there are some yardsticks that hint at how friendly an economy is likely to be to an aspiring entrepreneur. Amongst these, competitiveness and the ease of doing business are critical.

According to international benchmarks, sub-Saharan African countries consistently lag behind other regions. In the World Bank's annual Doing Business rankings, for example, the region's economies continue to cluster towards the bottom end of the table. Nigeria and Kenya, among the continent's more promising economies, rank 121st and 131st respectively, out of 182 countries. Of the bottom 20, all but three are in sub-Saharan Africa.

The World Economic Forum's 2012 Global Competitiveness report notes that the region generally "lags behind the rest of the world in competitiveness, requiring efforts across many areas to place the region on a firmly sustainable growth and development path going forward".

Such statistics make for a prohibitively difficult environment for aspiring entrepreneurs. The SME sector, which accounts for 95 percent of enterprises in OECD economies and 70 percent of employment, is almost non-existent in many sub-Saharan African economies. Often referred to as the "missing middle", this segment is in desperate need of a stronger enabling operating environment.

Gleaming examples of innovation elsewhere have thrived on the back of public support. In its early days, Silicon Valley, the holy grail of entrepreneurship, was heavily dependent on the support of Stanford University and the Defense Department. Transformative technologies such as the microchip and the internet have benefited from state support in procurement and research.

What, then, explains Africa's alleged hyper-entrepreneurship? Simply put, it is a misconception.

One long-time financier with a background on Wall Street, now based in Nairobi, recently characterised it as "predominantly traders with a can-do survival spirit". Admirable in its own right, this should not be mistaken for the long-term vision and commitment of the entrepreneur. The reality is that most commerce is for subsistence. Many of the traders lining the streets of Africa's capitals have done so for decades.

With youth unemployment looming as a principal threat to the African growth story, identifying and harnessing the power of its entrepreneurs is absolutely vital to Africa's long-term development.

The continent's recent economic success in an important element in achieving this. sustained GDP growth is already chipping away at poverty levels, while private sector development in key economies is gathering pace. Yet success is not inevitable, and growth alone is just one element that will be needed if Africa's entrepreneurial potential is to be fulfilled.

Focused and deliberate support is needed from governments, which must continue and accelerate reforms that improve the business climate and support entrepreneurs by providing an enabling environment. Large African and international businesses active on the continent also have a role to play. Leveraging their resources, they can provide critical training and market opportunities for aspiring entrepreneurs.

Finally, Africa's growing list of successful entrepreneurs, who are reshaping the business landscape on the continent, can use their experiences to guide and support future generations.

Lanre Akinola is the Editor of This Is Africa

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