Developing entrepreneurship in Africa: investigating critical resource challenges

By drawing upon institutional theory, the purpose of this paper is to investigate the role of four critical resources (credit, electricity, contract enforcement and political governance) in explaining the quality of entrepreneurship and the depth of the supporting entrepreneurship ecosystem in Africa.

A quantitative approach based on ordinary least squares regression analysis was used. Three data sources were employed. First, the Global Entrepreneurship Index (GEI) of 35 African countries was used to measure the quality of entrepreneurship and the depth of the entrepreneurial ecosystem in Africa which represents the dependent variable. Second, the World Bank’s data on access to credit, electricity and contract enforcement in Africa were also employed as explanatory variables. Third, the Ibrahim Index of African Governance was used as an explanatory variable. Finally, country-specific data on four control variables (GDP, foreign direct investment, population and education) were gathered and analysed.

To support entrepreneurship development, Africa needs broad financial inclusion and state institutions that are more effective at enforcing contracts. Access to credit was non-significant and therefore did not contribute to the dependent variable (entrepreneurship quality and depth of entrepreneurial support in Africa). Access to electricity and political governance were statistically significant and correlated positively with the dependent variables. Finally, contract enforcement was partially significant and contributed to the dependent variable.

A lack of GEI data for all 54 African countries limited this study to only 35 African countries: 31 in sub-Saharan Africa and 4 in North Africa. Therefore, the generalisability of this study’s findings to the whole of Africa might be limited. Second, this study depended on indexes for this study. Therefore, any inconsistencies in the index aggregation if any could not be authenticated. This study has practical implications for the development of entrepreneurship in Africa. Public and private institutions for credit delivery, contract enforcement and the provision of utility services such as electricity are crucial for entrepreneurship development.

The institutional void is a challenge for Africa. This study highlights the weak, corrupt nature of African institutions that supposedly support MSME growth. Effective entrepreneurship development in Africa depends on the presence of a supportive institutional infrastructure. This study engages institutional theory to explain the role of institutional factors such as state institutions, financial institutions, utility providers and markets in entrepreneurship development in Africa.