Malik Fal
Accelerating Entrepreneurship in Africa
Despite the positive economic news and encouraging trends that have emerged from
Africa over the past decade, the troubling reality remains that the everyday liveli-
hoods of Africans have not kept pace with macroeconomic growth, and per-capi-
ta GDPs on the continent persistently lag behind the rest of the world. We submit
that entrepreneurship can address this stubborn income gap in Africa if—and only
if—it is able to evolve beyond its current state of necessity-based informality into
one that is vibrant and robust enough to promote sustained economic growth and
generate long-term, viable livelihoods across the continent.
To gain understanding of the state of entrepreneurship in Africa, Omidyar
Network launched the Accelerating Entrepreneurship in Africa Initiative in 2012.
To execute this multiphase research project, we partnered with Monitor Deloitte
South Africa (formerly Monitor Group). We set out together to identify the chal-
lenges facing African entrepreneurs and to pinpoint the most trenchant barriers
inhibiting high-impact entrepreneurship.
The first phase of the initiative began with a survey of 582 entrepreneurs in six
sub-Saharan African countries: Ethiopia, Ghana, Kenya, Nigeria, South Africa, E
Tanzania. The survey was augmented by 72 in-depth interviews and then bench-
marked against 19 global peers.1 The survey focused on four critical aspects of
entrepreneurial environments:
(cid:2)(cid:1)Entrepreneurship assets: financing, skills and talent, and infrastructure
(cid:2)(cid:1)Business support: government programs and incubators
(cid:2)(cid:1)Policy accelerators: legislation and administrative burdens
(cid:2)(cid:1)Motivation and mindset: legitimacy, attitudes, e cultura
The initiative’s second phase brought together business, government, E
thought leaders to analyze the survey findings and to examine the state of entre-
preneurship in Africa more closely. The sessions were held in October 2012 at the
inaugural Entrepreneurship in Africa Summit in Accra, Ghana. Convened by
Omidyar Network in collaboration with the African Leadership Network and
Monitor Deloitte South Africa, the summit drew more than 300 relevant leaders
from both private and public sectors to participate in a solutions-driven dialogue
on fostering high-impact entrepreneurship across the continent. This article pres-
Malik Fal is the Managing Director of Omidyar Network Africa.
© 2013 Malik Fal
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Figura 1. Self finance and family loans are the main sources of funding.
ents the findings of the entrepreneur survey, the outcomes of the workshops in
Accra, and the conclusions of the third and final phase of the initiative: the recom-
mended actions needed to accelerate entrepreneurship on the continent.
We are pleased to report that a culture of entrepreneurship is growing in sub-
Saharan Africa, with indicators related to entrepreneurial motivation on par with
or higher than global peers. Tuttavia, despite these positive signs, the business
landscape in the region presents a number of challenges that prospective entrepre-
neurs must transcend. We outline the opportunities and challenges Africa’s entre-
preneurial ecosystem is facing, and the key practices that we believe will spur the
continent forward.
ENTREPRENEURSHIP ASSETS: FINANCING, SKILLS
AND TALENT, AND INFRASTRUCTURE
Financing
A supply of and access to capital are critical to stimulating entrepreneurship and
economic growth. The International Finance Corporation estimates that up to 84
percent of small and midsize enterprises (SMEs) in Africa are either unserved or
underserved, representing a value gap in credit financing of US$140-$170 billion.2
In the Monitor survey, challenges related to accessing finance drew mixed percep-
tions from the demand and supply sides. Seventy-one percent of respondents
believe that not enough equity capital exists to start new firms, but while many
“Afro-entrepreneurs” bemoan a limited supply of capital, financiers point out that
many projects simply are not fundable. Of the six countries surveyed, Kenya seems
to fare the best in terms of capital supply, given that only 52 percent of Kenyan
respondents highlight this as a challenge.
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Accelerating Entrepreneurship in Africa
Figura 2. The cost of accessing capital is prohibitive.
Currently, the main sources of capital for small and growing enterprises are
retained earnings, credit cards, loan associations, and investments from family and
friends. Forty-five percent of Afro-entrepreneurs report that they used family
loans to finance their business, E 19 percent say they used private equity (see fig-
ure 1). Tuttavia, once these sources are exhausted, entrepreneurs face the chal-
lenge of tapping other sources of capital. The following section explores the con-
straints facing funders and entrepreneurs, as well as various frameworks that
banks, venture capitalists, angel investors, incubators, and large corporations could
establish to increase the availability of financing to entrepreneurs.
The cost of funding is prohibitive. While the majority of Afro-entrepreneurs in
five of the six countries indicate that they know of organizations and programs that
can direct them to sources of capital, they cite the cost of funding as a primary rea-
son they are reluctant to access, or even explore, different avenues of funding. As
illustrated in figure 2, 70 percent of respondents believe that the cost of debt capi-
tal (E, for 60 per cento, the cost of equity capital) hinders company formation and
growth. The cost of capital charged by banks and investors is often so high that it
reduces the entrepreneur’s profit.
In some cases, banks require 150 percent of the borrowed amount in collater-
al, thereby automatically disqualifying many from funding eligibility. Government
funding is viewed as difficult to access due to bureaucracy and nepotism; only 5
percent of survey respondents used government funding. Many entrepreneurs
admit to being unaware of alternative funding options available from government
or private sources other than banks. There is also a lack of patient capital sources,
leaving entrepreneurs heavily reliant on family and friends for capital to start and
run their businesses.3
Access to finance remains a dilemma. Debt financing from banks is one of the
most prevalent funding sources in Africa; Tuttavia, it is viewed as unsuitable for
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entrepreneurs, given the structure of funding from banks. Paul Harris, founder of
the First Rand Group in South Africa, states that the risk-reward structure of banks
makes them reluctant to invest in startup ventures. If one considers the fact that
banks’ earnings are capped on loans made and that nine out of ten ventures fail
within five years of operation, the risks are exceedingly high and do not offer a cor-
responding reward. Banks make loans using depositors’ savings, which are put at
considerable risk if they invest heavily in entrepreneurial ventures.
Venture capital, where investors share the risk but also the gain on the equity
upside, provides a more appropriate source of financing. Equity markets for small
and growing firms, Tuttavia, are still in their infancy in Africa; only 33 percent of
respondents in the Monitor survey believe enough venture capital is available.
For venture capital to succeed in Africa, entrepreneurs must demonstrate to
investors that they are profit-driven, are interested in maximizing returns for
themselves and their financiers, and have a potentially profitable business.
Accessing financing is part of a composite of factors that require entrepreneurs to
demonstrate intimate knowledge of their business models, as well as the operating
environment of their industry as a whole. In the words of Paul Harris, the entre-
preneurs must “know something about everything, and everything about some-
thing.”4 Entrepreneurs must also have a convincing story and be able to persuade
potential investors that they are better than other entrepreneurs competing for the
limited pool of finances.
Although capital supply may be limited, financiers note a lack of fundable
business plans, pointing to issues ranging from the quality and feasibility of the
business idea to the commitment of the entrepreneur and their team. The entre-
preneur must focus on rigorous business planning and demonstrate understand-
ing of a particular sector. The central issue, according to the panelists who partic-
ipated in the Entrepreneurship in Africa Summit, is that financing is not the deter-
mining cause of a venture’s success or failure. Piuttosto, the entrepreneur’s ability to
adapt to market changes and cope with uncertainty, as well as their level of tenac-
ità, are greater determinants of business success. If these qualities are in place, cap-
ital will usually follow.
Communication plays a vital role in accessing capital. Entrepreneurs often
view funders’ investment requirements as onerous and difficult to meet. Sixty-four
percent of Afro-entrepreneurs say that bank lending policies favor well-established
firms over new companies, given their limited or nonexistent financial and bank
records. Nearly the same percentage of respondents (57 per cento) feels this is also
true of financial assistance programs and government subsidies. Funders must
perform a thorough due diligence on companies in which they invest. Their strin-
gent requirements are designed to reveal the extent to which an entrepreneur
understands their business model, industry, and external regulatory environment.
Yet, while a financier may discredit an entrepreneur who does not meet a checklist
of requirements, it is presumptuous to expect that many entrepreneurs understand
these requirements. Entrepreneurs may not be thinking about their businesses
along the same structured lines as financiers, thereby running the risk of discount-
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ing this type of funding as prohibitive or even impossible. Enhanced communica-
tion can mitigate many of these misperceptions and misunderstandings.
In some cases, entrepreneurs are aware of what is required but cannot meet
those requirements, particularly when new businesses must submit bank and
financial statements. To meet the financiers’ requirements to provide capital to
small enterprises, entrepreneurs are challenged with finding service providers who
can prepare documents, analyses, and reports that will support their financing
pitch.
With the exception of South Africa, business funders in Africa have limited
exit options to recoup their investments. This challenge is most pronounced in
Ghana, Dove 48 percent of respondents report that business owners rarely use
buyouts to sell their firms. Respondents in Ethiopia (42 per cento), Tanzania (41 per-
cent), Nigeria (38 per cento), and Kenya (37 per cento) share the same concern. IL
lack of viable exit opportunities is a disincentive for making investments in the first
place. The regulations for existing businesses to recoup their investment are also
considered rigid, and few entrepreneurs realize that large multinational corpora-
tions or private equity funds can offer compelling buyout options.
Access to market is a greater challenge than access to funding. Although many
entrepreneurs perceive a lack of funding as their greatest growth inhibitor, Essi
often discredit the effects of a lack of access to markets for their products and the
implications this has for getting funding to expand. Without multiple product
channels, revenues and profits likely stall, and this lack of growth makes funders
reluctant to invest.
The power of networks is critical to shaping an entrepreneur’s horizon. IL
size of an idea is shaped by the resources—financial and otherwise—that an entre-
preneur has to nurture the idea and bring it to life. If an entrepreneur believes they
can raise $5,000, the business idea gets adjusted accordingly; if they have access to $500,000, Tuttavia, the idea is likely to be larger. This poses difficulty for entrepre-
neurs who do not have a network of potential investors and mentors beyond their
family and friends, as their ventures face a higher chance of stagnation.
Seed financing and angel networks should be more formalized in Africa
because they are vital to boosting financing for small-scale ventures. Perché il
cost of making large-scale investments is equal to that of small-scale investments,
seed financing can be professionalized to make investing in small-scale ventures
more efficient and cost effective. Additionally, angel networks offer entrepreneurs
access to business experience and capital. Successful examples, such as the Mo
Ibrahim Foundation and the Tony Elumelu Foundation, highlight the trend
toward angel and philanthropic investments by Africans. Hakeem Belo-Osagie, an
angel investor from Nigeria and an Entrepreneurship in Africa Summit panelist,
attests that, in Nigeria, successful angels attract funds from other wealthy individ-
uals who are keen to invest in entrepreneurs.
Four percent of respondents report funding their businesses using corporate
finanziamenti, lease or receivables financing, or stock options. Some South African
entrepreneurs claim that their businesses are funded using multiple credit cards
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because most banks are reluctant to provide a loan to businesses but are willing to
increase limits on the entrepreneurs’ credit cards. This is a remarkably expensive
way to fund a business, but some entrepreneurs prefer the ease of accessible fund-
ing.
Preparedness for funding is key. For entrepreneurs to successfully secure fund-
ing, they must identify the availability of capital sources and the suitability of cap-
ital, given their company’s stage of growth. Entrepreneurs must be able to assess
their funding requirements and identify the funders that are most likely to fund
them. Due to many constraints and circumstances that limit funding options,
entrepreneurs should be proactive in the fundraising process and/or access exter-
nal support when needs arise.
Recommendations for Financing
Early-Stage Enterprise Financing in Africa
(cid:2)(cid:1)Reduce bureaucracy for early-stage companies to access government funding in
order to provide “softer” sources of financing for less-experienced entrepre-
neurs.
(cid:2)(cid:1)Expand or initiate local angel investing ecosystems to ensure the availability of
the most appropriate type of funding for startups, especially for entrepreneurs
who lack the network of friends and family that traditionally plays this role.
(cid:2)(cid:1)Provide tax and other incentives to formal, as well as informal (per esempio., family and
friends), angel investors to make it easier for people who have extra cash to
invest in startup businesses and reduce their risk. For example, in Singapore,
investors in startups receive tax deductions if the company fails or if its shares are
sold at a loss, and new businesses receive tax exemptions for three years.
(cid:2)(cid:1)Provide tax and other incentives for large clients of early-stage ventures to pro-
vide supplier credit to incentivize and reduce the risks suppliers take when pro-
viding generous payment terms or stock to new ventures. In South Africa, for
instance, large businesses get Black Economic Empowerment procurement
points by supporting small black-owned businesses on favorable terms.
(cid:2)(cid:1) Educate entrepreneurs about possible sources of funding outside banking sys-
tems. Leverage website portals and other types of guides so that local entrepre-
neurs have a quick view of various sources of funding available in their locality.
(cid:2)(cid:1) Train and assist early-stage entrepreneurs in the intricacies of raising capital.
When necessary, extend the training to general business management so that
fund seekers understand the language and requirements of fund providers and
become better prepared for their fundraising searches. In the United States, for
esempio, the Small Business Administration and regional or local governments
offer educational programs and grants in areas of traditionally low entrepreneur-
ial activity (per esempio., North Carolina Institute for Rural Entrepreneurship). IL
Gauteng Investor Centre, established by the South African government, acts as a
one-stop shop for investors, with the aim of removing barriers between entrepre-
neurs and funders and, Perciò, facilitating investments in small businesses.
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(cid:2)(cid:1)Train the local financial community to evaluate investment opportunities on the
basis of future prospects rather than historical cash flows. This will help ensure
that people working at financing institutions are better able to evaluate business
prospects and risks inherent to the new ventures they are asked to evaluate.
Mid-Size Enterprise Financing in Africa
(cid:2)(cid:1) Leverage indirect personal sources of funding, such as pension funds, to fund
SMEs so that more resources are available to fund more-established enterprises,
where the risks are lower. In Singapore, Per esempio, foreign pension funds are a
growing source of capital investment; in the United States, pension funds are the
leading source of venture capital for minority-owned firms.
(cid:2)(cid:1)Expand or initiate local venture capital-investing ecosystems to ensure that the
most appropriate source of funding is available for companies at the mid-level
stage of development. Typically, midsize companies need banking overdraft
facilities to cover predictable working capital, debt to finance certain types of
capital investments, and second rounds of equity to finance expansion. This kind
of funding can be made available through venture capital firms and possibly pri-
vate equity funds for the larger midsize companies (circa the $70 million thresh-
old).
(cid:2)(cid:1) Use local banking systems to disburse donor or government lines of credit to
SMEs to reduce prohibitive interest rates and collateral requirements. Questo
approach puts enterprise funding in the hands of commercial bankers who are
trained to assess risk and evaluate potential but may lack the soft funds needed
to take slightly less-secured credit-equity positions. Kenya’s Equity Bank, for
esempio, lends on preferential rate lines provided by multilateral institutions.
(cid:2)(cid:1) Provide incentives and support to encourage midsize enterprises to practice
sound financial management and maintain adequate records, including audited
statements. This will help such enterprises be more funding ready, as investors
invariably ask for reliable financial information.
Later-Stage Enterprise Financing in Africa
(cid:2)(cid:1)Create capital-raising engagement programs with leaders of well-established pri-
vate African enterprises to inform entrepreneurs about the benefits of private
equity funding and of listing at local stock exchanges. This will help alleviate the
concerns of many successful African entrepreneurs about giving up control of
their enterprise brainchild. For instance, In 2012, India launched an SME stock
exchange, which is expected to lower borrowing costs by 5 percent.5
(cid:2)(cid:1)Create continent-wide regional champion programs to facilitate access to capital
(both debt and equity) for independently vetted pan-African companies that are
expanding across the continent.
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SKILLS AND TALENT
The informal sector is pervasive in Africa, so the continent sees a significant
amount of informal entrepreneurism. This reality often prevents SMEs from pro-
fessionalizing and thus scaling their operations. Entrepreneurs with technical
backgrounds, such as information technology or engineering, or those with little
to no business management training have an even greater need for experienced
managerial talent to complement their technical talent.
The challenge that entrepreneurs in Africa (and elsewhere) face is the ability to
attract and retain such managerial talent, especially in light of severe competition
with well-established corporate firms that have the means and security to hire that
talent. Hence, most African education systems focus on preparing the workforce
for employment by more-established firms. As highlighted in the Monitor survey,
the existence (or lack) of entrepreneurship training in the education system plays
a crucial role. Entrepreneurs in Africa require training and education to allow
them to succeed in starting or growing a business. Inoltre, entrepreneurs
need a skilled workforce to meet their business goals.
While 86 percent of colleges and universities in sub-Saharan Africa offer a
course in entrepreneurship, Afro-entrepreneurs overwhelmingly respond that
schools and tertiary institutions do not focus on the practical skills required to
start, manage, or work in entrepreneurial ventures.6 Only 14 percent of Afro-entre-
preneurs believe that primary and secondary schools devote enough time to teach-
ing entrepreneurship. Colleges and universities do better, but they still could offer
more practical aspects of entrepreneurship in their curricula. Inoltre, just 25
percent of Afro-entrepreneurs agree that colleges and universities devote enough
time to teaching entrepreneurship.
Key Points of Discussion
Schools are lacking in the culture of innovation. Stakeholders generally agree that
the education system tends to focus on theoretical education and on harnessing
skills most useful in corporate firms, failing to offer more practical curricula that
can adequately prepare youth to work in entrepreneurial enterprises. Among col-
leges and universities in sub-Saharan Africa, only 7 percent have an entrepreneur-
ship center dedicated to entrepreneurial development; 28 percent offer courses
specializing in entrepreneurship; E 10 percent offer a course in innovation and
technology.7 Limited opportunities for hands-on learning and managing small
projects mean that students are not afforded clear paths for cultivating competen-
cies related to practical thinking and creative problem-solving—skills needed to
successfully build and manage a business. Di conseguenza, most Afro-entrepreneurs do
not feel adequately trained to manage a new firm, which for many leads to the ten-
dency to look for jobs in well-established firms and corporations. According to the
Monitor survey, the percentage of Afro-entrepreneurs who believe they have the
skills to manage new firms is quite low: 9 percent in South Africa, 14 percent in
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Ghana and Nigeria, 19 percent in Ethiopia, 22 percent in Tanzania, E 23 per cento
in Kenya.
Formal education, including attitudes and behaviors, plays a role in entrepre-
neurship. The lack of a basic business culture in most small-scale enterprises—evi-
denced by traits such as procrastination, poor client management, and missing
deadlines—may be attributed to the fact that few formally educated employees
have worked at entrepreneurial ventures. Such employee challenges in most small
businesses reduce their ability to retain long-term clients or acquire new ones.
Many entrepreneurs do not see how the type of formal education provided in
schools and the values and attitudes promoted at home relate to the skills they need
to develop their businesses. Through efforts such as conducting continuous assess-
ments and providing a strong ethical culture and system of values, at-home
upbringing and learning institutions can help lay an important foundation for
entrepreneurial behavior.
Developing an entrepreneurial skills base requires a shift in culture. One of the
biggest limitations to developing an entrepreneurial skills base is the lack of sup-
port from society and formal institutions. Few avenues of support are available to
help people identify their passion and build the confidence required to convert
that passion into a business. Society fails to encourage students to recognize or take
advantage of their inherent entrepreneurial potential, as society often values and
respects professionals over entrepreneurs. Parents and guardians pressure their
wards into studying more professional courses rather than entrepreneurial or cre-
ative ones, sometimes even tagging students as crazy when they make the decision
to work in a startup company or develop their own businesses.
Entrepreneurial ventures need professional skills. Participants in the Accra
workshops said that business owners find it difficult to recognize when their oper-
ations need the support of a professional with a different set of skills and expertise.
Entrepreneurs often take on too much when trying to sustain their business, Quale
can eventually stunt growth. For entrepreneurial organizations to grow, it is impor-
tant to identify the professional skills needed for a particular task or stage of
growth, to acknowledge the team’s existing strengths and gaps, and then to source
the missing skills accordingly. Trust must also be established between businesses
and service providers. Entrepreneurs fear that hired service providers may steal
their business ideas.
Financial remuneration is not the only tool available for entrepreneurs to
attract talent. The notion that remuneration always has to be monetary, and there-
fore that small enterprises cannot attract the most talented staff, should be revisit-
ed. It is true that in most cases entrepreneurs cannot compete with more struc-
tured companies for certain types of skilled talent; Tuttavia, the skills that small
ventures require may not be available in the regular job market. Providing oppor-
tunities for problem-solving in the work environment, which offers increased indi-
vidual responsibility, is an effective means of attracting talented staff.
Entrepreneurs have the option of investing in management skills training for their
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staff if they cannot afford to source outside skills. To grow their businesses, entre-
preneurs should be willing to train and build the workforce available to them.
Talent management systems should attract, engage, and retain employees. IL
right employee value proposition provides an opportunity to attract talent to build
staff and maintain the appropriate composition of skills required for a company to
grow. A company’s culture should excite and reward innovation among its staff. It
should also challenge and reward creative abilities and the capacity to exercise
independent judgment. A culture that promotes employee autonomy and flexibil-
ity is more likely to attract young talent. Entrepreneurs should promote the oppor-
tunities available to would-be employees for cross-functional work within the
business. This can often be an alternative to attracting young talent because cross-
functional work gives workers a better understanding of the operations of small
enterprises. We make the following recommendations for skills and talent.
Recommendations for Skills and Talent
(cid:2)(cid:1) Include entrepreneurial and vocational training in the education system in
Africa so that learners are exposed to entrepreneurship from a young age. Questo
will help future workers determine the possibility of having their own business-
es, the financial rewards attached to ownership, and the challenges inherent to
the journey.
(cid:2)(cid:1)Create and deploy an entrepreneurship curriculum for primary and secondary
schools with practical apprenticeship-like programs that supplement theoretical
apprendimento, collaborations between local schools and local stakeholders to provide
internships, and training as a means to develop the talent needed to support
small enterprises. This will expose young learners to the full reality of entrepre-
neurship: the idea, the journey, the challenges, and the successes, both theoreti-
cally and practically. In Singapore, for example, students receive a year of
mandatory entrepreneurship education in the primary school system. In
Mexico, students are required to learn basic economics and business skills;
beginning with basic classes at the pre-high school level, students progress to
creating and managing their own business by the age of 18. The United States
and many other countries have numerous examples of primary and secondary
educational curricula that emphasize group learning and hands-on projects.
(cid:2)(cid:1)Best practices such as these can be applied to increase entrepreneurial education
in formal institutions in Africa. The school system in Mauritius provides entre-
preneurship learning at the primary level. Real-world experience will also aid
young people in developing critical skills such as integrity, adaptability, and hav-
ing the wherewithal and constitution to do the right thing.
(cid:2)(cid:1)Leverage Internet-based solutions that offer training in business skills and entre-
preneurial management to provide assistance to entrepreneurs that is scalable
and available at a relatively low cost. For instance, the International Finance
Corporation has developed an SME toolkit—an online collection of training
materiali, translated into 15 languages—for SME managers in developing coun-
tries.
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(cid:2)(cid:1) Establish communication and career counseling programs that encourage and
guide young people toward the creation of entrepreneurial ventures. Identifying
one’s passion is an important step in the path of entrepreneurship; developing
the corresponding skill set and/or obtaining experience that can translate one’s
passion into a business that adds value to society requires access to the right sup-
port structures.
(cid:2)(cid:1)Schools should help students by providing guidance and counseling services to
help them choose between various career options. Entrepreneurs need training
programs on how to promote the value of greater worker responsibility in entre-
preneurial ventures than in the corporate world; this will prepare them to artic-
ulate the opportunities for professional advancement that their companies offer.
(cid:2)(cid:1)Institute “secondment”—a temporary transfer to another job or post within the
same organization—mentorship, and networking programs in which seasoned
executives (previously or currently employed) support SMEs for limited periods
by working alongside and training SME staff on key projects. By creating oppor-
tunities for practical, on-the-job training and skills development, SME staff can
engage in hands-on learning with experienced managers.
(cid:2)(cid:1)Offer incentives (per esempio., subsidies, tax advantages) to entrepreneurs who motivate
prospective professional staff with advantages such as stock options or special-
ized training. This will help entrepreneurs to be creative in their compensation
so they have better chances of attracting and retaining talent.
INFRASTRUCTURE
The poor state of infrastructure across sub-Saharan Africa is a significant obstacle
to the growth of entrepreneurial enterprises, as it adversely affects entrepreneurs’
costs, market access, and efficiencies.
Respondents to the Monitor survey pinpoint the lack of access to constant elec-
trical power as the biggest challenge related to infrastructure. Unreliable electrici-
ty supply, poor-quality and limited breadth of road and rail networks, and poor
communications infrastructure are all highlighted as having a significant impact
on the cost of doing business. Influenced by additional costs, such as purchasing
generators or grading rural roads, 52 percent of respondents in Tanzania believe
that new and growing firms cannot afford the costs of physical infrastructure.
According to the survey of Africa’s entrepreneurs, these are their worst infra-
structure problems.
(cid:2)(cid:1) Infrastructure is inadequate and unreliable. Only 38 percent of Afro-entrepre-
neurs agree that infrastructure provides sufficient support for new and growing
firms.
(cid:2)(cid:1) Infrastructure is costly and inefficient. Only 23 percent of Afro-entrepreneurs
believe that new and growing firms could afford the costs of using infrastructure.
(cid:2) Electricity supply is inadequate and unreliable. The issue is most prominent in
Nigeria, where only 27 percent of respondents believe that the physical infra-
structure provides sufficient support for new and growing firms.
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The cost of dealing with unreliable infrastructure is prohibitive. With the
exception of South Africa, all countries surveyed face electricity shortages, E
most entrepreneurs must purchase diesel generators to supplement grid electrici-
ty. This increases the costs of doing business. While supply is less of an issue in
South Africa, recent announcements regarding electricity tariff increases over the
next few years will see the cost of electricity becoming a more significant propor-
tion of small business costs.
There are, Tuttavia, some perceived successes in Kenya, where the integration
of mobile technology into everyday life has improved the way business is conduct-
ed and payments are processed. Fifty-three percent of Kenyan respondents believe
that physical infrastructure in the country provides sufficient support for new and
growing firms. The following are recommendations for improving infrastructure.
Recommendations for Improving Infrastructure
(cid:2)(cid:1) Deploy and upgrade infrastructure first in selected productive areas with sub-
stantial business activity and strategically important local industries.
Infrastructure deployment requires making significant capital investment where
the prospects of good economic activity and returns exist.
(cid:2)(cid:1) Favor public-private partnerships in the execution of infrastructure projects.
Public agencies in Africa are often affected by capacity and resource constraints,
and both the culture of urgency and types of skills that tend to reside in the pri-
vate sector play a pivotal role in the completion of infrastructure projects.
BUSINESS SUPPORT: BUSINESS ADVISORY SERVICES,
GOVERNMENT PROGRAMS, AND INCUBATORS
Business Advisory Services
Africa lacks widely-available, high-quality business support services. Existing serv-
ices are primarily located in urban centers, which are out of reach for thousands of
rural entrepreneurs. A number of other visible and invisible barriers, such as cost,
gender discrimination, and poor-quality assistance, have prevented these centers
from providing effective support to African entrepreneurs.
Access to professional and affordable business advisory services (per esempio., lawyers,
accountants, consultants) remains elusive for early-stage businesses. Only 30 per-
cent of entrepreneurs in Kenya and less than 25 percent in the other five Monitor-
survey countries believe that business support services are sufficient to meet the
needs of new firms. Inoltre, fewer than 20 percent of entrepreneurs in five of
the six African countries believe that business support services are available
throughout the entire country. Where services are available, the Monitor survey
indicates that fewer than one-third of respondents find the value of the services
delivered worth the cost, particularly services received from banks (22 per cento).
Access to the knowledge and tools required to formalize and sustain business-
es is scarce. The majority of entrepreneurs and their employees do not have the
necessary expertise or the professional networks to address the breadth of their
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businesses’ functional needs. Inoltre, these services are not easily found in
Africa, especially services required to raise capital.
Obtaining funding is a process that requires a business to conduct a rigorous
analysis of its business model, its market potential, and its changing external envi-
ronment. Entrepreneurs without access to information, or without access to the
required expertise, are unable to present convincing applications for funding. IL
situation is quite dire for necessity-driven entrepreneurs in particular, because
available services are targeted at more-established entrepreneurs rather than start-
ups.
The supply, access, and affordability of business advisory services prohibit
their uptake. Service providers such as accountants, lawyers, and third-party con-
sultants are mostly clustered around key urban centers and thus are not easily
accessible to entrepreneurs who operate in rural or less affluent areas. Although
banks are found to be the most available source of advisory services, their ability
to support businesses is rarely exploited due to the low perception of value. When
the scarcity of services is coupled with high costs, the majority of entrepreneurs are
unable to obtain the counsel and advice they need.
Government Programs
As a general observation, large government-assistance programs for SMEs have
not worked for two reasons. Primo, mass-scale, factory-like business assistance
doesn’t work because in business, one size does not fit all: industry, stage of devel-
opment, and management expertise present too many variables for a template
approach to be effective. Secondo, government personnel lack the motivation and
skills required to assist entrepreneurs. Entrepreneurs are best assisted either by
other entrepreneurs or by established functional or industry experts who have
appropriate and relevant expertise.
African governments have increased support for entrepreneurs by creating
several initiatives to encourage small enterprises. Tuttavia, the results of these ini-
tiatives have been limited. In the Monitor survey, a composite of survey questions
related to the supply, accessibility, and coordination of government programs
shows that Afro-entrepreneurs rate the efficacy of government programs lower
than the peer average. Government programs can be more effective and some gov-
ernments have made efforts to support entrepreneurs, including the following pro-
grams:
(cid:2)(cid:1)Small and Medium Enterprise Project, Ghana
(cid:2)(cid:1)Youth Enterprise Development Fund, Kenya
(cid:2)(cid:1)Federal Government Youth Entrepreneurship Programme, Nigeria
(cid:2)(cid:1)Small Enterprise Development Agency, South Africa
(cid:2)(cid:1)Small Industries Development Organisation, Tanzania
Nevertheless, entrepreneurs on the whole do not believe that the programs are
having the intended impact. Factors contributing to this may include invisible bar-
riers, including gender and ethnicity, that affect small-enterprise owners’ access to
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support programs. A general sense prevails that you need to know someone in gov-
ernment to get the support. Inoltre, government does not understand busi-
ness well, so even when entrepreneurs can access these programs, they are not
always particularly useful. Barriers in legislation and policies also make it difficult
for African entrepreneurs to formalize their businesses, seek funding, or enter new
markets.
Incubators
Incubators and accelerators can offer entrepreneurs vital support during the start-
up phase. It is widely held that, to be effective, incubators must focus on a limited
number of companies to provide the high-touch support that entrepreneurs need
to launch, find and serve new customers, and scale. The concept of mass incuba-
tion is, Perciò, ill-suited for such requirements, although it has unfortunately
been widely adopted in many African and non-African countries. The Monitor
survey found that most Afro-entrepreneurs believe there are not enough incuba-
tors to support the launch of new firms in their respective countries: 92 percent of
those in Ghana, 90 percent in South Africa, 87 percent in Tanzania, 78 percent in
Nigeria, 77 percent in Ethiopia, E 76 percent in Kenya.
Incubators and accelerators, though in their infancy in Africa, have demon-
strated some success. Incubators and accelerators give entrepreneurs the tools
required to formalize and grow their businesses. Given the aforementioned lack of
entrepreneurship training in schools, incubators play a particularly vital role in
addressing the gap in entrepreneurial capability. Services range from physical
incubation (setting up offices and structures required to function) to providing
networks of advisory services and funding.
Africa has relatively few business incubators for startup and early-stage busi-
nesses because support organizations for such businesses are a new, but growing,
trend. Cases of successfully incubated businesses do exist, Tuttavia, and these sup-
port recognition of the need for incubators and accelerators.
Two examples—one for-profit business and one government program—
demonstrate the potential of incubators. Privately owned and managed NextZon
in Lagos provides a range of services that include strategy and planning, office
facilities, and human resource, legal, and accounting services. The Incubation
Support Programme of the South African Department of Trade and Industry sup-
ports incubators via cost-sharing (40:60) between government and the private sec-
tor. Funding can be used to provide business development services, infrastructure
such as building and furniture, information and communications technologies,
feasibility studies, product or service development, and operational costs. The fol-
lowing are recommendations for improving business support.
Recommendations for Business Support
(cid:2)(cid:1) Provide generous incentives and subsidies for private-sector players that offer
business development services to set up companies providing business support
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Accelerating Entrepreneurship in Africa
services. Make vouchers and discounts available for SMEs to access specific pro-
fessional advisory services, such as legal, accounting, and human resources serv-
ices.
(cid:2)(cid:1) Allow private and government-run business support organizations to leverage
widespread government offices (per esempio., post offices and city halls) for the provision
of business services to reduce the capital costs of providing support. Document
and disseminate the sources of business support services in a jurisdiction at both
the national and local level, such as information portals in electronic and print-
ed formats.
(cid:2)(cid:1) Create networks of support services in which local business professionals are
identified, documented, mobilized, and incentivized (per esempio., via personal tax
breaks) to provide mentoring and/or technical support to local entrepreneurs.
As an example, the Endeavor VentureCorps is a global network of more than one
thousand individuals who mentor entrepreneurs. Accountants, lawyers, and tax
specialists could assist entrepreneurs on their own time and earn tax credits or
cash while providing crucial support.
(cid:2)(cid:1)Establish one-stop-shop setup and regulatory compliance agencies for SMEs, COME
has been done in Russia:
– Create, if needed, dedicated access for women and ostracized minorities.
– Create, if appropriate, dedicated access for nationals who have emigrated and
want to invest back home, by having branches at relevant embassies.
(cid:2)(cid:1)Provide incentives to corporate entities and their employees to start employee-
created businesses or spinoff divisions. For example, the Enterprise
Development Programme in South Africa awards companies with more than
five million South African Rand in turnover that spend 3 percent of profits for
enterprise development (per esempio., training, support, equity, and debt) con 15 points
in the Black Economic Empowerment scorecard.8 This in turn gives them pref-
erential access to government business opportunities.
(cid:2)(cid:1) Develop networking programs or platforms for young entrepreneurs; provide
spaces where less experienced entrepreneurs learn from experienced business
owners; and leverage large anchor firms, as well as university and business
school networks, to provide entrepreneurs with physical access to groups of like-
minded individuals and enterprises (per esempio., technology driven, clean energy, E
manufacturing) where incubation happens naturally. An example of this is the
iHub, an innovation hub for the technology community in Nairobi.
(cid:2)(cid:1) Where appropriate and feasible, create entrepreneurship hubs focused on the
commercialization of locally developed intellectual property because tech entre-
preneurs often lack the business skills to transform innovation into sustainable
imprese. Examples of these types of hubs include Bangalore in India and the
Silicon Cape Initiative in South Africa.
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POLICY ACCELERATORS: LEGISLATION
AND ADMINISTRATIVE BURDENS
Legislation
The Monitor survey found that laws governing business competition favor large,
well-established firms, although markets remain relatively open, given the infancy
of many industries on the continent. South African respondents in particular iden-
tified labor law as a barrier: 54 percent say that government labor regulations
actively discourage the hiring of employees. By contrast, only 33 percent of respon-
dents across sub-Saharan Africa share these views.
The complexity of legislation in South Africa, coupled with the harsh penalties
imposed for noncompliance, is a significantly greater constraint for new entrepre-
neurial ventures than for those in peer countries. The requirements of the
Consumer Protection Act, Labour Relations Act, and National Credit Act 73 are
onerous and time consuming. Entrepreneurs who fail to comply face harsh penal-
ties: Per esempio, the penalty for failing to adhere to the procedures for dismissing
employees, as set out in the Labour Relations Act, could be as high as 12 A 24
months of wages to the dismissed employee in question. The complexity of regu-
lations places an unfair burden on entrepreneurs vis-à-vis large, well-established
firms that are better positioned to absorb the costs of compliance. The Strategic
Business Partnership has estimated that the average cost of compliance for small
businesses is approximately 8.3 percent of turnover, compared to only 0.2 per cento
for big businesses.9
Positive views on legislation in other African countries are driven in part by an
ability to curtail poorly enforced regulations. The pervasive informality on the
continent allows entrepreneurs to operate below the radar and outside the confines
of formal laws. This informality excludes these businesses economically, but with
limited access to financial and consumer markets, 60 percent of respondents
believe that it is acceptable to launch a new venture by operating in the informal
sector. Allo stesso modo, 62 percent of respondents personally know entrepreneurs who
started in the informal sector, avoided paying taxes, operated without certified
accounts, and hired employees informally.
From the state’s perspective, this informality results in the forfeiting of poten-
tial tax revenues. Tuttavia, if moves are made to formalize industries and process-
es, policymakers and other stakeholders may very well be confronted with the
challenge of preparing entrepreneurs to operate more formally while simultane-
ously having to reduce potentially detrimental unintended consequences of signif-
icantly higher operating costs in a more regulated environment.
It is relatively easy for new and growing firms to enter new markets. With the
exception of South Africa, most sectors are not typically dominated by large firms;
entrepreneurs are therefore able to pursue market opportunities without being
unfairly blocked by well-established firms. In Tanzania, Per esempio, the economy
is still heavily reliant on the agricultural sector, which employs approximately 80
percent of the workforce, thus many other sectors remain largely undeveloped.
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Accelerating Entrepreneurship in Africa
Administrative Burdens
Despite recent improvements, administrative burdens still hold back businesses
across the continent. Out of 183 countries ranked in terms of general ease of doing
business, Kenya (109th), Nigeria (133rd), and Tanzania (127th) all rank in the bot-
tom half. South Africa (35th) is in the top quintile. Allo stesso modo, all countries except
South Africa fall in the bottom half for starting a business. In Ghana and Tanzania,
entrepreneurs indicate particularly acute challenges when dealing with construc-
tion permits. In contrast, respondents in Ghana indicate relative ease in the
process of registering a business.10
While Afro-entrepreneurs concede that reforms enacted to improve the ease of
doing business have been helpful, entrepreneurs continue to face many adminis-
trative challenges. Entrepreneurs repeatedly remark that the business environment
has significantly improved over the past 10 A 20 years, particularly in East Africa,
due to the implementation of various government initiatives aimed at reducing red
tape. These include efforts to increase the ease with which new businesses can
obtain licenses and permits, trade across borders, and enter new markets. Such
efforts not only have helped to improve entrepreneurs’ experiences but also have
opened up new market opportunities. Nonetheless, there is room for additional
intervention and, as previously discussed, the majority of entrepreneurs continue
to operate in the informal sector, where they are not subject to bureaucracy and
regulation. Below are our recommendations for policy accelerators.
Recommendations for Policy Accelerators
(cid:2)(cid:1) Provide targeted incentives to entrepreneurs for the development of key sectors
that are currently underserved.
(cid:2)(cid:1)Develop more nuanced legislation that differentiates between big business and
SME segments. Conduct impact assessments before enforcing new legislation to
determine the potential consequences for entrepreneurs and proactively enact
measures to minimize negative outcomes.
(cid:2)(cid:1)Reduce the prohibitive costs, time, and bureaucracy associated with regulatory
compliance to discourage the widespread
informality of businesses.
Governments should continue to implement reforms that can further decrease
red tape and create a more enabling environment for new businesses. In Kenya,
for instance, recent improvements to business registration processes have signif-
icantly decreased administrative burdens for new businesses. Additionally, IL
Kenyan Anti-Corruption Commission has been established to curb corruption.11
MOTIVATIONS AND MINDSET:
THE CULTURE OF ENTREPRENEURSHIP IN AFRICA
The culture of entrepreneurship in Africa is largely driven by necessity—that is,
entrepreneurship as a means of survival. Entrepreneurship is viewed as a last
resort, rather than an opportunity or aspiration, although the Monitor survey sug-
gests that the pursuit of entrepreneurship as a career has gained acceptance and
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legitimacy in Africa. Despite the fact that most African societies seem to approve
of entrepreneurship, efforts must still be made to promote high-impact entrepre-
neurship based on opportunity rather than necessity.
It was noted during Omidyar Network’s 2012 Entrepreneurship in Africa
Summit that Africans at this juncture may not fully appreciate the entrepreneurial
journey. Having a romanticized image of the smart, impetuous, bold, and rich
entrepreneur who conquers markets and lives in luxury can be very misleading if
it is not coupled with an awareness of the countless hours of work, the uncertain-
ty of meeting payroll, struggles to keep operations going on razor-thin cash flows,
and many other challenges that all entrepreneurs encounter at one time or anoth-
er. This section covers the drivers of the culture of entrepreneurship, as well as the
roles various institutions can play in fostering a better culture of entrepreneurship.
General views on entrepreneurship are improving. While formal employment
is still highly prized, some encouraging trends are emerging. Opportunity-driven
entrepreneurship, for example, is becoming respectable, and the Monitor study
found that more than three-quarters of Kenyan and Ethiopian respondents now
believe that most people consider becoming an entrepreneur a desirable career
choice. The same holds true for 64 percent of respondents in Tanzania, 51 per cento
in Ghana, 49 percent in Nigeria, E 44 percent in South Africa .
Maybe even more important is the high number of Afro-entrepreneurs who
agree with the statement, “People who successfully start new firms have a higher
level of respect than a manager in a corporation”: 78 percent in Ethiopia, 63 per-
cent in Kenya, 55 percent in Tanzania, 55 percent in Nigeria, 54 percent in Ghana,
E 47 percent in South Africa.
Stereotypical views of business success also adversely affect the culture of
entrepreneurship. In Africa, the successful businessperson is often celebrated for
their wealth and lifestyle, rather than their business acumen and entrepreneurial
flair. Di conseguenza, many young people venture into entrepreneurship solely to attain
wealth and emulate such lifestyles, embarking on the same lines of business as the
successful businesspeople they are trying to emulate without any knowledge of that
particular industry. This discourages innovation. This skewed view of success is
exacerbated by the common belief that, to be celebrated, people must acquire
material possessions and give the impression of success before actually attaining it.
Thus some entrepreneurs buy expensive cars and rent luxurious and expensive
office space. This culture poses many risks to businesses whose resources are redi-
rected toward consumer expenses that are not necessary for the business.
To combat these stereotypes and offer an alternative model, the number of
awards celebrating entrepreneurship is on the rise. Examples include the Africa
Awards for Entrepreneurship, All Africa Business Leaders Award, Schwab
Foundation for Social Entrepreneurship, and Tanzania Entrepreneur of the Year
Award. Complementing such awards is an increased number of media outlets
focusing on entrepreneurship. Respondents to the Monitor study acknowledge the
media’s improving coverage: responding to the statement, “The media often pub-
lishes stories about people who successfully start new firms," 75 percent of those in
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Kenya, 63 percent in Ethiopia, 57 percent in Nigeria, 52 percent in South Africa,
46 percent in Tanzania, E 40 percent in Ghana agree.
Failure should be an option for success in business. Lack of knowledge—and
the resulting fear—among existing and aspirant entrepreneurs keeps them from
taking calculated risks to start and stretch their businesses. Entrepreneurs must be
prepared to acknowledge that some of the most thorough and well-executed plans
will not be successful. Entrepreneurs must be allowed to fail fast and fail often—
and bounce back. Some investors actively seek individuals who have failed, learned
from their failures, and are willing to try again. Fortunately, attitudes toward fail-
ure are becoming more accepting. Afro-entrepreneurs in the Monitor study recog-
nize that failure is part of the entrepreneurship process and that it is common for
failed entrepreneurs to try again by starting a new business. Rates of agreement
with this concept are 68 percent in Kenya, 67 percent in South Africa, 63 per cento
in Tanzania, 56 percent in Ethiopia, E 54 percent in Nigeria.
The culture of entrepreneurship is also largely defined in the family unit. IL
litmus test for gauging the view of entrepreneurship is the dinner-table conversa-
zione, where one’s closest supporters disclose their views of on the idea of entrepre-
neurship. Governments also play a role in fostering a culture of entrepreneurship;
Tuttavia, views are mixed about the extent of that role. Government by nature is
not entrepreneurial, and opponents of government involvement say it is ill suited
to lead. There also is concern that entrepreneurs could form dependencies on gov-
ernment, thereby stifling creativity and resourcefulness. Proponents, Tuttavia,
point to models where government has successfully improved the culture of entre-
preneurship. In South Korea, before the 1997 economic crisis that led to high lev-
els of unemployment, most people aspired to work for the government or large
organizations. After the crisis, the government encouraged entrepreneurship by
implementing creative policies that changed tax laws and bankruptcy codes. IL
government also introduced an Entrepreneur of the Month program to raise the
profile and stature of entrepreneurs. We also make the following recommenda-
zioni.
Recommendations for Motivations and Mindset
(cid:2)(cid:1)Establish programs and media initiatives that celebrate entrepreneurs’ successes,
honor their journeys, and encourage those who have failed to rise again. For
esempio, Singapore has established the Phoenix Award, which specifically
awards entrepreneurs who have failed and then gone on to create another start-
su.
(cid:2)(cid:1)Formulate and introduce income-insurance schemes for selected types of
African entrepreneurs.
1. The six sub-Saharan African countries are benchmarked to a peer group, including an addition-
al 13 countries where Monitor Deloitte has previously undertaken the Entrepreneurship
Benchmarking Initiative: Chile, China, Colombia, Denmark, Egypt, India, Jordan, Russia,
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Singapore, South Korea, United Arab Emirates, United Kingdom, and United States This peer
group was chosen to allow the focus countries to be compared to a geographically and economi-
cally diverse group of countries.
2. “Barriers to Finance Africa’s SMEs,” ABN Digital, 2011, P. 3.
3. Patient capital is often defined as a long-term investment where an investor is willing to accept a
longer-term horizon for return of capital or forgo maximum financial returns in return for social
impact.
4. Paul Harris. Omidyar Network’s Entrepreneurship in Africa Summit in Accra, Ghana, ottobre
2012.
5. “NCR Based Small and Medium Enterprises Hail NSE SME Exchange,” The Economic Times,
settembre 2012.
6. Dr. Jean Kobongo, “The Status of Entrepreneurship Education in Colleges and Universities in
Sub-Saharan Africa,” Millersville University, 2010.
7. Kobongo, “The Status of Entrepreneurship.”
8. More info on the Black Economic Empowerment Scorecard can be found here:
http://en.wikipedia.org/wiki/Black_Economic_Empowerment
9. “Counting the Cost of Red Tape,” Strategic Business Partnerships for Growth in Africa.
10. World Bank, Ease of Doing Business Index, 2012.
11. Kenya Overview, Trust Law website, 2012.
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