It is now widely recognised that in regions like Africa, for economic and other reasons, the public sector has had to disengage and divest from many areas of the economy and allow private enterprise. But what does entrepreneurship really mean in Africa? Is it a concept that only applies to scalable start-ups and ventures or it extends to the day-to-day enterprises that keep the lights on in many African households?
Given that African environments are significantly different from Western ones in terms of economic infrastructure and political considerations, an opportunity is presented to define entrepreneurship in a manner more suited to the African context.
Entrepreneurship definition
Entrepreneurship has become a global byword for positivity in business and management. It is viewed as the key to developing a robust and growing economy. Although most would agree that at its core entrepreneurship involves the identification of opportunities in the unmet, underserved and emerging needs of people through the marshalling of resources and the creation of enterprises, the nature of the activity is highly context sensitive. What works in one place and for one group of people will not necessarily work elsewhere. Both the needs themselves and the methods and structures that can be acceptably developed differ from place to place and people to people.
After completing an innovation and entrepreneurship course for a European MBA, I realised that entrepreneurship in the Western world is presented as a sophisticated activity. Our entrepreneurial ventures in Africa cannot be classed the same. So, when they tell you that your MBA doesn’t quite prepare you to run a business in Africa, you really should listen to what they have to say. When it comes to making sense of African entrepreneurship, there is no clear blueprint that one can use to ascertain the practices and to project success. There are millions of entrepreneurs across Africa, but researchers and scholars haven’t made much sense of them yet — particularly when it comes to highlighting the differences and similarities with entrepreneurs elsewhere.
According to the African Development Bank, 22% of Africa’s working-age population are starting businesses. This is the highest entrepreneurship rate in the world. The entrepreneurial rate ranges from 9% in Algeria to about 40% in Nigeria and Zambia. The dispersion is related to the income level of the African countries. Poorer economies tend to have higher percentages of their population engaged in entrepreneurship, often out of necessity.
When I was growing up, my mother worked a day job as a branch manager for a glazing company and came back home to be a chicken farmer, tailor and eventually a dealer in general and kitchen hardware. All these ventures put us through school, clothed us, fed us and kept the lights on, indicating that the salary from the glazing company was not enough to carry the financial burdens of the household. This is the case in most African countries.
Who is the African entrepreneur?
African entrepreneurs mainly consist of women — 27% of adult female population — and the youth. The continent’s female entrepreneurship rate is also the highest in the world; this means African women are twice as likely to start a business as women elsewhere in the world. But their businesses are generally less profitable and provide fewer jobs than those of males. This problem can be traced to the gendering of work and marginalisation of women from the mainstream economy during colonisation.
Family businesses are especially important to African entrepreneurship. Many of these firms are informal, which limits their growth. Family-based start-ups also incur community obligations that serve to limit their performance. Although informal start-ups offer an important source of employment, low returns are associated with these businesses.
Another area of relative importance to African entrepreneurship is the diaspora, with remittances being a significant source of start-up investment. The demographic of African entrepreneurs also consists of diaspora returnees who are more likely to engage in entrepreneurship than take up formal employment. For diaspora returnees, social networks play an important role in ensuring the success of their entrepreneurial pursuits. These networks have more positive effects on non-family firms in Africa than they do for family firms.
Challenges for the African entrepreneur?
African entrepreneurs appear to have a greater tolerance for risk than non-entrepreneurs and are more oriented toward innovation. The continent’s biggest business challenge is persistent institutional voids, hence entrepreneurial innovation is usually centred on connecting Africans to goods and services. Examples include mobile money services in Kenya (Mpesa) and Zimbabwe (Ecocash), private security in Ghana and laundry washing in Uganda. In addition to navigating these institutional voids to seek value creation opportunities, there are other challenges (“challenge” often means “opportunity” to most entrepreneurs). These include access to finance, building organisational capabilities for scalability and enabling opportunities through new market-entry strategies to operate in informal markets.
Based on the global definition, growth is a key proponent of entrepreneurship. And why does growth matter for the entrepreneur? Because growth is an important stimulus for entrepreneurial opportunities. Turning now to entrepreneurship in Africa, financial resource constraints seem to stop African entrepreneurs from growing their businesses.
Africa continues to change, often in unpredictable ways. These changes are the main source of entrepreneurial opportunity. It is important for us to develop our own theories about this change and the opportunities it presents. Do Western approaches make more sense than local ones? Maybe not, but we are still finding our footing in this regard.