Entrepreneurialism: Africa in transition

Entrepreneurialism: Africa in transition

Article Type: Guest editorial From: African Journal of Economic and Management Studies, Volume 6, Issue 2.

From all available evidence, Africa is in transition. This transition is driven by entrepreneurship. There is a converging awareness and broad consensus that any intervention that has the prospect of helping to transform Africa must be organic, homegrown, and African led. This view strikes fidelity with Adedeji’s (2002, p. 3) insistence that Africa must take “the responsibility of occupying the driver’s seat of the automobile of its destiny.” The distinguishing attribute of the ongoing transition in Africa is “The rise of Africapitalism” (The Economist, 2014). A corollary to Africapitalism is the ascendancy of “entrepreneurial paradigm” which is igniting “economic renaissance in Africa” (Edoho, 2015).

African leaders need responsive policies to institutionalize the ongoing transition grounded on entrepreneurialism as an efficacious pathway of their economic future. Entrepreneurship is taking precedence in Africa, and the private sector job creation is rapidly supplanting dependence on the public sector jobs. The tsunami of entrepreneurship sweeping through Africa is unleashing Promethean creativity, innovativeness, and inventiveness. Evidence from the region indicates a proliferation of SMEs and that entrepreneurship is gaining momentum. Entrepreneurship is not just driving change, it is also catalyzing transformation of the African socioeconomic systems. Entrepreneurial phenomenon in Africa is not only expanding economic opportunities, but it is actually democratizing the process of creating opportunities as well as access to them. Africans are optimistic about the promise of entrepreneurship paradigm. For them, entrepreneurship is the key to unlock existing opportunities and create new ones as well as include the excluded in the transformational process.

The 2012 “African entrepreneurship: Sub-Saharan African regional report” by Global Entrepreneurship Monitor (GEM) provides reassuring and authoritative findings on the optimism regarding the wave of entrepreneurship in Africa (Herrington and Kelley, 2012):

• Overall positive attitudes about entrepreneurship.

• Most individuals in SSA have a high perception about the existence of good opportunities for starting a business in the next six months, with the exception of South Africa (35 percent) falling well below the average of 70 percent for the region.

• Economies of SSA exhibit the lowest level of fear of failure, with only 24.5 percent of all respondents indicating that fear of failure would prevent them from starting a business. The only region that comes close to that is Latin America and the Caribbean at 28 percent.

• The levels of intentional entrepreneurs in SSA are high at an average of 53 percent, which is consistent with their positive perceptions about opportunities and capabilities.

• In all SSA countries, without exceptions, entrepreneurship is seen as a good career choice; more so than in any other region except Latin America.

• At 28 percent, with the exception of South Africa (7 percent), the average rate of total early-stage entrepreneurial activity (TEA) in SSA is significantly higher than all other geographic regions. Countries like Zambia (41 percent, Ghana (37 percent), Nigeria (35 percent), and Angola (32 percent) boast some of the highest TEA in the world.

Contributions in this Special Issue

Felix M. Edoho inquires into the instrumental role of public policies in fostering entrepreneurship and catalyzing economic growth and transformation in Africa. Using Nigeria as an illustrative case of what happens in virtually all African countries, he asserts that poor entrepreneurial environment cannot be explained simplistically by either the absence or inadequacies of public policies. While there are a plethora of public policies purported to promote entrepreneurship and SME development in Nigeria, those policies tend to be misaligned at different junctures. The ramifications of policy misalignments are that instead of complimenting one another, policies actually negate and cancel out one another, therefore limiting the efficacy of policy outcomes relative to the promotion of entrepreneurship and SME development.

Edoho documents instances of policies and regulations that have opposite effects. Analyses of access to credits and crippling taxation indicated that they discourage prospective entrepreneurs from initiating start-ups; inadvertently create artificial barriers to entry; and they impose enormous compliance costs. Perceptions of high costs of compliance with burdensome regulations and high rates of taxation hinder the efforts of current entrepreneurs and SME operators from expanding and growing their businesses to create more jobs. Realignments of policies at various levels are necessary to address the detrimental effects of policy misalignments that tend to discourage entrepreneurial efforts. Bureaucratic regulatory burden and heavy costs of compliance are major contributory factors to the growth and expansion of the informal sector in many African countries (see Auriol, 2014).

John Kuada observes that a major challenge confronting policy makers in many developing countries, particularly in African countries, is how to identify and target growth-oriented small businesses and microenterprises that are more likely to create jobs, generate revenue, and alleviate poverty. While policy makers are often interested in job creation and poverty alleviation, they commonly lack information and guidance on the types of small businesses and microenterprises that have a high potential to address such problems and achieve the broader economic goal of maximizing national welfare. To address this endemic problem, Kuada provides an invaluable integrated framework for classifying entrepreneurship. The utility of such a classificatory framework is that, in the African context of resource scarcity, it helps policy makers to intentionally prioritize and systematically target those small business enterprises with the highest potential to create jobs and generate revenue.

In the framework, Kuada classifies entrepreneurship into two broad categories: necessity triggered (survivalists and orphans) and growth oriented (opportunists/lifestyles business owners and eye-catchers). He demonstrates the applicability of the framework by using four illustrative cases in Burkina Faso, Malawi, and Ghana. Literature indicates that most of the SMEs in Africa are necessity triggered characterized by survivalist entrepreneurship (Bewayo, 1995; Naude and Havenga, 2005); they often do not grow beyond start-ups; and their owners often fold them up for paid jobs when economy improves; and this accounts for their high mortality rate (Edoho, 2015). From the national economic standpoint, policy makers should target growth-oriented SMEs in the Kuada classificatory schema. Such SMEs are the incubators of innovation and creativity that can foster job creation and poverty alleviation.

Darlene Mutalemwa examines the impact of globalization on the SME development and growth in Africa. She locates the critical role of SMEs in their potential to contribute to manufacturing industrialization in the broader context of the changing environment of globalization. Mutalemwa posits globalization as both a description and a prescription. Characterizing the phenomenon of globalization as a double-edge sword that cuts both ways, she advocates for Africa to brace itself to respond to the challenges of the globalization as well as take advantage of the opportunities it brings. The unpalatable truth is that Africa cannot simply wish away globalization. The region faces two stark options: capitalize on the opportunities presented by globalization it or be crushed by its negative consequences. Abundant evidence indicates that Africa can capitalize on the opportunities offered by globalization by carving out an appropriate market niche in the hypercompetitive global economy.

In light of its enormous natural resource endowment and vast human resource base, Africa has the potential to supply the global market niche with high-end value-added products (Edoho, 2015, pp. 4-5). Africa has the resource base to compete in the global niche market on the basis of differentiation and least-cost advantages. For ages, Africa suffered lack of entrepreneurship and impoverishment as a source of primary resource extraction. The region was unable to establish a manufacturing base to produce finished products by adding value to its raw materials. The region was forced to buy finished products from its raw materials at premium prices (The Economist, 2014). Sustaining the momentum of entrepreneurship and the emerging Africacapitalism should inevitably reposition Africa to take advantage of the opportunities presented by globalization.

Oludele Akinloye Akinboade take on the intriguing challenges of understanding the growth performance of SMEs in Central and Littoral provinces of Cameroon’s manufacturing and retail sectors. After a survey of 700 SMEs, they conducted a coherence test and retained 575 for the study. Akinboade found that business location affects turnover growth; that the likelihood of negative or zero growth diminishes with the age of SMEs; that increased levels of education result in improved turnover growth; and that no relationship exists between gender and growth of business turnover.

The authors also found that burdensome municipal regulations and time taken to meet compliance requirements negatively affect turnover growth. The ramifications of unfriendly business regulations for entrepreneurship in Africa are well known (see Gatewood and Boko, 2009; World Bank, 2011). More than anything else, African countries need to take a comprehensive look at their bureaucratic systems and reduce the length of time it takes to register small businesses and microenterprises as well as minimize the exorbitant costs of complying with burdensome regulations.

Marta Lindvert, Darush Yazdanfar, and Hakan Boter conduct empirical investigation into how female entrepreneurs in Tanzania assess their accessibility to various external financial sources. It is widely known that female entrepreneurs play critical role in any economy, but particularly in developing countries (UNCTAD, 2014). It also well known that African SMEs and entrepreneurs face constraints in their efforts to access credits (Baliamoune-Lutz et al., 2011). However, female entrepreneurs face even more formidable obstacles than their male counterparts in accessing the financial resource for start-ups and, if they already own SMEs, to develop, expand, and or promote them. A proper understanding of the obstacles female entrepreneurs face is a necessary step in articulating concrete policy solutions that would better meet the needs and preferences of this vital group in African economic development equation.

The study by Lindvert, Yazdanfar, and Boter revealed financial preferences among female entrepreneurs, by analyzing responses of 114 respondents to survey questionnaires and conducting 21 semi-structured interviews. Their findings lend credibility to the hypothesis that female entrepreneurs perceived semi-formal capital as the most accessible external capital. Subsidies from government ranked second, while informal capital, such as loans from family, friends, and investors, ranked third. The findings show that female entrepreneurs would prefer external capital from formal sources, rather than semi-formal or informal capital if they had a choice. Formal banks often demand collateral that SME operators do not have. In virtually all cases, SME operators resort to semi-formal and informal financial sources as an absolute necessity. Because female entrepreneurs are critical contributors to socioeconomic development in LDCs, particularly in rural areas, governments need to pay serious attention to their access to financial capital. Cognizant of this phenomenon, the latest UNCTAD (2014) report proposes Female Rural Entrepreneurship for Economic Diversification (FREED) to bolster the development and consolidation of women’s enterprises in non-farm activities in rural areas in LDCs. Such an international effort should help to liberate access of female entrepreneurs to financial sources deepen entrepreneurship in LDCs.

Concluding remark

Taken together, the contributions in this issue provide a deeper understanding of entrepreneurship in Africa, further illuminating the directions for public policy and future research. As papers in this issue indicate, deepening entrepreneurship in Africa requires sustained commitment of policy makers. While all forms of entrepreneurship must be encouraged, growth-oriented SMEs and female-owned enterprises require specific policy attention relative to their accessibility to financial capital. Robust business services for entrepreneurs and SME operators will be helpful in guiding prospective entrepreneurs relative to business locations. It is imperative for African countries eliminate most of the unnecessary bureaucratic red tape to encourage start-ups as well as reduce cumbersome regulations to minimize compliance costs for entrepreneurs. In terms of future research, Africa is still a virgin terrain for entrepreneurship studies. Scholars need to focus more attention on the region as a frontier of their entrepreneurship research. The emerging paradigm of Africapitalism is a worthy focus for future scholarship.

Professor Felix Moses Edoho, Institute of Entrepreneurship & Business Development, Lincoln University, Jefferson City, Missouri, USA

References

Adedeji, A. (2002), “From the Lagos Plan of Action to NEPAD and from the Final Act of Lagos to the Constitutive Act: Wither Africa?”, Keynote address, African Forum for Envisioning Africa, Nairobi, April 26-29.

Auriol, E. (2013), “Barriers to formal entrepreneurship in developing countries”, available at: http://siteresources.worldbank.org/EXTNWDR2013/Resources/8258024-1 (accessed May 15, 2014).

Baliamoune-Lutz, M., Broxiova, Z. and Ndikumana, L. (2011), “Credit constraints and productive entrepreneurship in Africa”, Working Paper Series, No. 276, Political Economy Research Institute, Amherst, MA.

Bewayo, E.D. (1995), “Uganda entrepreneurs: why are they in business?”, Journal of Small Business Strategy, Vol. 6 No. 1, pp. 77-87

Edoho, F.M. (2015), “Entrepreneurship paradigm and economic renaissance in Africa”, African Journal of Economic and Management Studies”, Vol. 6 No. 1, pp. 2-16

Gatewood, E.J. and Boko, S. (2009), “Globalization: entrepreneurial challenges and opportunities in the developing world”, in Acs, Z.J. et al. (Eds), The Role of SMEs and Entrepreneurship in a Globalized Economy, Ministry of Education and Research Globalization Council, Stockholm, available at: www.regeringen.se/content/1/c6/12/58/93/d614cc47.pdf (accessed January 13, 2013)

Herrington, M. and Kelley, D. (2012), “African entrepreneurship: Sub-Saharan African regional report”, Global Entrepreneurship Monitor, Babson College, Babson Park, MA.

Naude, W.A. and Havenga, J.J.D. (2005), “An overview of African entrepreneurship and small business research”, Journal of Small Business Entrepreneurship, Vol. 18 No. 1, pp. 101-119

The Economist (2014), “The rise of Africapitalism”, The Economist, November 20, pp. 1-3

UNCTAD (2014), The Least Developing Countries Report 2014, United Nations, Geneva

World Bank (2011), “Doing business 2011: making a difference for entrepreneurs Economic Community of West African States (ECOWAS)”, available at: www.doingbusiness.org/subnational-reports/ (accessed September 25, 2013).

Further reading

Spring, A. and McDade, B. E. (1998), “Entrepreneurship in Africa: traditional and contemporary paradigms”, in Spring, A. and McDade, B.E. (Eds), African Entrepreneurship: Theory and Reality, University of Florida, Gainesville, FL, pp. 1-34