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Entrepreneurship and African Development
Thomas, Wolfgang
6/1/2010
​A paper prepared for the Norwegian Council for Africa's biannual (2010) publication
 
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Entrepreneurship and African Development: Is the challenge being met?


The role (both actual and potential) of local entrepreneurs in Africa's hallenging economic development process seems both underrated and burdened by colonial-rooted preconceptions.


At the same time the preconditions for successful entrepreneurial development seem to be harsher in Africa than on other continents. Concerted, proactive support strategies are therefore called for. As in other fields of economic development, South Africa may be in a useful position to play a constructive role in that field – if supported in strategic spheres.


1. Entrepreneurs in developing market economies

Ever since J B Say's writings on entrepreneurship, students of classical economics have viewed entrepreneurship as one of the four basic "factors of production". The entrepreneur is supposed to identify business opportunities and to bring together the other factors of production (natural resources, labour and capital) to create the goods or services, and to run the enterprise profitably.

Classical economic history is equally flattering about the role of entrepreneurs in the process of economic development. Famous individuals are seen to have played a critical role in the start of the Industrial Revolution. Similarly, the history of European explorers in the "discovery" of other continents and the evolution of mercantilism is full of personal stories of early entrepreneurs, who paved the way for the broader processes of business development.

Socialist writers of the 19th century were less flattering with regard to entrepreneurs, almost to the point of dropping entrepreneurship as a legitimate factor of production (rather making a distinction between management as a particular type of labour and "exploitation of the workers" as the main role of entrepreneurs).

Looking at the grassroots level of business development in the (currently) developed countries (North America, western Europe and Japan), small enterprises are often seen as the backbone of economic development, notwithstanding the critical roles played by the public sector and large corporations. Here again, it is easy to glorify (small-enterprise) entrepreneurs as kingpins of millions of business entities and their complex interaction.

Thus, it should not surprise us that for many observers of the African economic development scene (and in particular the vast challenges facing the continent) the focus should fall on the existence, role/s and effectiveness of African entrepreneurs. Do they exist? What role are they currently playing? How effective are they (or rather could they be) in ongoing or new development initiatives?

If we look more closely at the colonial encounter, the process of African decolonisation and national development efforts over the past few decades, relatively little attention is given to African entrepreneurs. The focus has rather fallen on the role of (new, national) states, the (negative or in some cases perceived to be positive) role of foreign (multi-national) corporations and aid agencies. Ironically, it may be the rising disillusionment with these "development agents" which is lately bringing us to a closer look at the actual and potential role of African entrepreneurship in the broader development process.


2. Stereotyping African entrepreneurship

Conventional perceptions about African entrepreneurs held by observers outside the continent and many first-world-rooted observers in Africa combine two notions, viz.


  • (traditional) African entrepreneurs lack some of the critical elements of "modern entrepreneurs" and somehow behave differently (or more "traditionally"),
  • there is an extreme shortage of the type of African entrepreneurs which we need to accelerate the business development process.


Undoubtedly these perceptions have to some extent been shaped by the images we have of the early colonial encounters between invaders and "local tribesmen" as well as the early phases of development in the colonies. With much of the political, economic and social power during the colonial centuries in the hands of foreigners (including the business partners of colonial governments, educators, clergy and others) it is quite logical that local entrepreneurial behaviour patterns were interpreted in a rather biased way. At best local entrepreneurs were perceived as "shrewd survivalists" who adapted their behaviour to the colonial relationships and power challenges, but did not really play a significant, constructive role in the development process. Local politicians and foreign businesses dominated the scene.

South Africa's apartheid system created a particular version of this complex relationship between "white" and (local) "black" entrepreneurs. Up to the 1980s the business scene was totally dominated by whites, with Afrikaner (small-business) entrepreneurs being late starters compared to English and other foreign-rooted entrepreneurs. When the National Party government after 1960 tried to establish ("independent") black "homelands", this proved opportune as an excuse to prevent black small enterprises from increasing in the urban townships outside the "homelands". In fact, there were lists of products that "township enterprises" were allowed to sell (rather than have the entrepreneurs move to the homelands). On the other hand homeland administrations felt the "lack of sufficient or sufficiently dynamic" business entrepreneurs a major constraint to faster development. What is more, in the teaching of business in the 1970s there was talk of (needing more) "Xhosa entrepreneurs" or "Zulu entrepreneurs" who were sufficiently adapted to local needs and opportunities.

Thus, irrespective of where in sub-Saharan Africa we looked, the lack of forceful, dynamic African entrepreneurship was viewed as one of the reasons for insufficient development momentum.


3. Africa's entrepreneurial environment

Against the background of an alleged shortage or "lack" of entrepreneurs in Africa we first have to get a glimpse of the nature and diversity of existing (small-) business entrepreneurs across Africa. Here the starting point should probably be an awareness of the vast size and complexity of informal-business activities, i.e. activities falling outside the focus of registered, statistically captured, legal enterprises and those operating without fixed business premises. Many African national-account estimates suggest informal-sector activities being as high as 60 per cent, if not even more of employment or value-added. These activities cover virtually all sectors of the economy, ranging from subsistence agriculture, fishing and forestry as well as informal (usually illegal) mining, to simple food- or agri-processing and clothing production (starting with relatives and the neighbourhood as clients) to construction (of shacks and business structures), trade in all its many manifestations and to tourism, money-lending, taxis, child and old-age care as well as education.

Many observers of the African development scene are not aware of the full breadth of these informal activities, let alone the often complex nature of their enterprises and the many challenges they face on a daily basis. In the 1960s and '70s social anthropologists explored these "traditional" business activities, reaching interesting conclusions with regard to their potential and needs. The influence of first-world business management thinking and public-sector control has largely sidelined these traditional enterprises, leaving a huge void in our understanding of their dynamics.

Going a step further, closer observation of the African development environment during the past few decades reveals a range of significant obstacles which influenced the preconditions for effective entrepreneurial behaviour, in particular in the formal sector. We can mention a few of these.

  • Low population densities in subsistence agriculture areas provided little scope for entrepreneurs to learn from others or through intensive business interaction.

  • In many parts of tropical Africa climatic factors and widespread diseases dampened spontaneous entrepreneurial behaviour of people.

  • Geographic factors (long distance to the sea or to larger settlements) created high thresholds to profitable business, even for those motivated towards entrepreneurial action.

  • Low levels of literacy and the virtual absence of systematic vocational training and the lack of business education or business information services further limited learning processes. In many parts of Africa even radio stations did not reach the bulk of the rural population – with urbanisation levels often only 10 to twenty per cent.

  • In the absence of concerted financing facilities and the prevalence of low subsistence earnings, there was virtually no scope for external start-up or expansion finance for rural entrepreneurs.

  • In-migrating groups, which often displayed strong entrepreneurial behaviour, were treated as intruders if not enemies, which reduced the scope for entrepreneurial cross-fertilisation.

  • Conventional education facilities gave little attention to business or entrepreneurial training.

  • The narrow sector basis of rural economic activities also limited the scope for new business activities, with colonial legacies and streamlined imports further dampening local business opportunities.

  • Inflexible regulatory structures and bureaucratic rigidities often smothered whatever entrepreneurial initiatives emerged.

  • Weaknesses of the physical infrastructure (transport links, electricity supply, urban infrastructure facilities, etc.) increase cost levels and strain business start-ups or expansions.


Looking at the full spectrum of African countries and business activity patterns, there are, of course, striking examples of active trading centres, but even here the obstacles in the way of dynamic small business growth remain formidable.

Yet, looking more closely at the development dynamics of a number of African countries (those with oil, minerals or agricultural exports, higher urbanisation levels and better communication grids) we can see the evolution of more differentiated entrepreneurial behaviour. South Africa, Egypt, Morocco, Mauritius, Ghana and parts of Nigeria may give ample evidence of those trends. Put in a simplified way, proactive entrepreneurship has expanded rapidly over the past two decades and is now spread widely where the physical, geographic, educational, communication and resource constraints are less severe, and where multi-dimensional steps to address them have been able gradually to unfold.

We can briefly illustrate this transformation (and its limitations) with reference to South Africa's black entrepreneurs.


4. Black entrepreneurship development in South Africa

Against the background of apartheid's deliberate and comprehensive neglect, if not suppression, of African entrepreneurship, the past two decades have seen dramatic, widely spread increases in black (small-)business involvement across South Africa. This can be linked to the "opening" of the "black homelands", rapid growth of the larger urban areas and in particular the black townships and a virtual explosion of black consumer spending. Equally important, though not always effective, was the initiation and expansion of diverse small-enterprise support policies and the broader impact of South Africa's black economic empowerment (BEE) programmes (e.g. the increase of corporate and public sector procurement from small black-owned enterprises).

Equally significant were other direct and indirect ways to strengthen the business learning, information and advice processes among black entrepreneurs. This included the spread of mentoring and coaching as well as the entering of partnerships between emerging (black) and established (white) small enterprises. Even in the critical area of access to finance the spread of formal and informal micro-finance and a broadening long-term view of conventional banks is now leading to increased SME funding. What is more important, we are now seeing more and more attention given to sector-focused small-business support programmes and bottom-up initiatives to address problems in specific industries or local areas.

These very brief, seemingly optimistic observations about South Africa's black (or African) entrepreneurial sector should not disguise the fact that overall progress in this field is still limited, and there is much frustration at grassroots level about the limited coverage of support programmes. For example, if a township (like Khayelitsha in Cape Town) with 780 000 inhabitants (and about 80 000 formal and informal enterprises) has only two established business-information centres (Seda and Red Door) and a few NGOs active in this critical field of SME support, the deficiency factor is large. What is more, the lack of deeper understanding of informal-business activities (and how to help these entrepreneurs) is also still serious.

Thus, as happens in so many areas of South Africa's complex development process, there is an unfolding entrepreneurship support process, which needs much more attention, but can also share its experiences with other African countries and international donor agencies.


5. Towards a broader partnership approach in entrepreneurship development

One of the most exciting dimensions of South Africa's transition and development of the past two decades has been its opening and diversification of economic interaction with other African countries. This has evolved from the close interaction (if not "integration") with the more immediate neighbours through Sacu and the SADC to extending business interaction with many other countries in southern, east, central and west Africa, and even the Maghreb countries in the north. Aside from outright business deals and South African investments in other African economies (making her the largest foreign investor on the continent), these contacts now also include the use of educational facilities, joint research and joint efforts to tackle common development obstacles.

The field of small-business development could (and should) be one of those areas of expanding cooperation. From our brief review of the small-business scene across Africa, we realise the vast challenges currently facing African governments, NGOs and other civil society players if they want to strengthen this pivotal sector in the economic development process.

While there are many differences in the structure and dynamics of economic development in semi-developed South Africa and the bulk of the underdeveloped African economies, there also seem to be important areas with similar challenges and scope to learn from each other or pursue related goals. In the sphere of entrepreneurship and small-business promotion we can summarise the following areas.

  • Expanding and strengthening the understanding of informal entrepreneurs, their potential and needs as well as what practical steps could effectively help them to grow and develop.

  • The rapid expansion of effective skills training and business education for small-enterprise operators.

  • An equally rapid increase and diversification of small-business information, advice and mentoring facilities in order to strengthen the knowledge and information base at grassroots level.

  • The further expansion of micro-financing and micro-franchising facilities.

  • The systematic spread of modern (ICT) technology (cellphones, internet, etc.) to strengthen the communication capacity of small enterprises, in particular in rural areas.

  • The development of national networks of small-enterprise incubators or cluster facilities in order jointly to address the full range of impediments of small enterprises.

  • The development of (sub-)sector- (or niche-)focused SME-support programmes, coordinated by special-purpose public-private partnership bodies. These should include agriculture, manufacturing and tourism as core sectors but should also cover other significant sub-sectors.


Ideally, South African institutions and experts in these fields should join forces with emerging support agencies in other African countries, with significant further support coming from international aid agencies and specialist SME-support bodies in the developed countries. To date there are very few of such triangular support programmes, but the vastness of the challenges should encourage increased efforts.
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2 Comments
Interesting article I agree as well , how ever I do think this is as a result of apartheid era. If maybe African people maybe things would be even between the races.
Posted by luvuyo on 16-04-2015 11:45 AM
wow writing article of entrepreneurship needed to develop in Africa,that so nice but question will that happen? because people of Africa are so depend to government, instead of trying to co-operate with government making things easy for him, they  complain with every thing. do not know when they will realized to be stood and help develop a country.
Posted by mildred on 21-04-2016 4:34 PM




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