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Africa Entrepreneurship Outlook

The Entrepreneurship Landscape, Tools for Facilitating Entrepreneurship, Capacity Building, Private Public Partnership

Report by Sharon Obuobi

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I. The Entrepreneurship Landscape a. Defining Entrepreneurship b. The Impact of Entrepreneurship on Economic Growth The Socialization and Motivation of Entrepreneurs a. Understanding The Entrepreneurship Experience Tools for Facilitating Entrepreneurship a. Unlocking entrepreneurship opportunities b. Capacity building c. Example: Mobile Entrepreneurs in Africa d. Unlocking the Value in Africas workforce e. Innovation f. A Case Study: Entrepreneurship and Innovation in Ghana Entrepreneurship and the Private Sector a. Engaging and developing partnership b. The Nature and Benefits of Private Public Partnership c. Example: Sustainable Agricultural Development d. Example: Healthcare The Way Forward a. MSMEs Investments: Access to Finance b. Government Support: Entrepreneurship Training Programs c. Regulatory reform: Research and Policy References 3








The Entrepreneurship Landscape

Defining Entrepreneurship
Entrepreneurship is a multidimensional concept, with a definition that varies according to context. In many sub-Saharan African countries, this term is interchanged with self-employment, which refers to people who provide employment for themselves as individual business owners rather than from a paid job. A large portion of the self-employment happens in the informal sector.1 The Global Entrepreneurship Monitor defines entrepreneurship as any attempt at a new business or new venture creation, such as self-employment, a new business organization, or the expansion of an existing business, by an individual, teams of individuals, or established businesses.2 Small businesses are often regarded as the seedbeds or key vehicles of entrepreneurship.3 In addition, the relationship between entrepreneurship and small business is even closer due to the heavily skewed nature of the size distribution of firms towards small firms.4

The Impact of Entrepreneurship on Economic Growth

Africa is often dismissed as an environment for entrepreneurship opportunities and sustainable growth. This can be partly attributed to the nature of the many entrepreneurships as informal micro-sized to medium-sized enterprises. Most economists support the development of micro-sized to medium-sized enterprises for the alleviation of poverty, the generation of employment, and the promotion of the national economic development.5 Micro-sized to medium-sized enterprises are now recognized for their roles in supporting their respective national economies. Although these small enterprises have relatively low market influence individually, they have the potential to contribute to national economic growth as a collective.6 There is however, some criticism of the impact of entrepreneurship on economic growth. A study of Ugandan entrepreneurs concluded that African entrepreneurs tend to emphasise economic survival, making a living and providing for family as their motivation for creating businesses.7 The study also concluded that higher economic growth may discourage entrepreneurship by leading to higher wages and raising the opportunity cost of self-employment.8 According to a report by Verheul et al, several arguments have been brought forward supporting a negative impact of economic growth on the level of self-employment. This contradiction emphasizes the need for a clarification that the focus of this report is on the investment opportunities for entrepreneurial innovation rather than non-innovative entrepreneurships for economic survival.

1 Naude and Havenga, 14 2 Ibid. 3 Ibid. 4 Ibid. 5 Robson, Haugh, and Obeng, 331 6 Ibid 7 Naude and Havenga, 19-20 8 Ibid, 19

The Socialization and Motivation of Entrepreneurs

Understanding the Entrepreneurship Experience
Socialization is defined as the lifelong process whereby an individual inherits and disseminates customs, values, norms and behaviour as appropriate to his or her social position and society. In fewer words, it is the means by which socio-cultural continuity is attained. By analysing the socialization and motivation of entrepreneurs within Sub-Saharan Africa, we can gain a better understanding the entrepreneurship experience. A recent 2011 report by Jane Khayesi and Fredrick Nafukho explored the research scene on entrepreneurship in Africa. Their findings offered insight into the motivations of entrepreneurs, which are heavily dependent on economic factors. From a sample of 356 Ghanaian and Kenyan entrepreneurs, it was discovered that some motivations for business ownership were: Increase ones income Create self-employment opportunities Desire for independence Gaining public recognition Creating jobs for family members Using are: the same sample, it was also discovered that some key factors of entrepreneurial success Hard work Management skills Access to capital Business experience

In the same context, some general challenges include: Weak economies High level of competition Lack of financial capital From the analysis group of 201 self-employed professionals in micro-enterprises, it was determined that some factors that influence self-employment identification are: Individuals training Occupation of parents Need for achievement From these research results we can see the strong need for financial capital among entrepreneurs. Although many aspire to create successful businesses, the lack of financing makes the risk of failure a danger to their economic survival. Once a viable and innovative entrepreneurship opportunity has been found, an investing firm should be ready to alleviate the financial burden of starting a business for the entrepreneur, and offer access to management resources if required.

Tools For Facilitating Entrepreneurship

Unlocking Entrepreneurship Opportunities
In order to unlock the entrepreneurship opportunities in Africa, an individual or organization must consider opportunities in capacity building, innovation, industry competitiveness and investments. Combined with an understanding of the drivers of entrepreneurship development, this strengthens the likelihood of business success.

Capacity building
Simply defined as the development of skills and institutions, capacity building is a critical element in the achievement of sustainable economic growth9. The quality of economys human skills and institutions is an important determinant of the quality of output generated. As a result, investors and entrepreneurs have stakes in the building of capacity within their regions. The availability of effective government institutions, financing programs, and a highly skilled human resource pool increase the likelihood of entrepreneurship success and the level of innovation. A variety of organizations are currently involved in the building of capacity in African developing countries. These range from international financial institutions such as the IMF and African Development Bank, to specialised local organizations such the Mobile Entrepreneurship in Africa.

Example: Mobile Entrepreneurship in Africa (MEA)10

This program was created with the goal of teaching potential entrepreneurs about existing technologies, the market for services, and business principles specific to the mobile sector. A key element often missing in most development programs is a consideration for the local perspective. MEA places an emphasis on adapting the implementation of its program to accommodate the distinct needs of each country or region. With several initiatives established in Ghana, Senegal, and Kenya, this program is designed to help IT entrepreneurship through four main stages: I. Demystification: Addressing the misconception that the development of mobile services is restricted to companies and network operators. This includes a series of lectures and demonstrations to show how accessible design tools for innovation are. Capacity Building: This stage involves training on the technical and business aspects of mobile entrepreneurship. Topics vary from web language (JavaScript, HTML, and PHP) to SMS applications and mobile websites. Incubation: Beginning from the initial implementation and ending with the launch of a company, the highlights of this stage include technical support, business mentoring, and contact with focus groups. Access to Capital: Despite the relatively small amount of money required by entrepreneur to develop between the inception and service stages of their businesses, there is a lack of




9 Nsouli, 34 10 Froumentin, and Boyera, 60-62

capital available. Many are restricted to banks that hardly offer loans or do so at unfeasibly high rates (30 to 60 percent per annum). An investor looking for new investments opportunities should find programs such as the Mobile Entrepreneurship In Africa, which offer many benefits. Partnering with these organizations to support entrepreneurs or investing directly in the programs are opportunities for financial returns. Many of these programs have the structure to address a need, but require financial support to be sustainable and to flourish. An alternative is to invest directly into entrepreneurs through programs such as MEA for a greater control over the organization the specific businesses of interest.

Unlocking the Value in Africas Workforce

In the workplace, the rapidly changing business environment makes on-going training at all levels essential. Therefore public and private organizations, SMEs and individual entrepreneurs are advised to offer regular training.11 Training can help workers learn new methods of approaching problems, which may reduce inefficiencies or lead to further innovation. Training is a component of capacity building because by training the workforce, the capacity to generate more quantity and quality in production is increased. Ladzani and Van Vuuren suggest that training for SME owners and managers should be approached in three ways:


Business skills & Management

Entrepreneurial Skills

Workforce Training

An amenable model designed by Van Vuuren and Nieman attempts to address the question, How do you improve the entrepreneurial performance of an individual by means of training intervention? The model postulates that entrepreneurial performance is a multiplicative function of motivation times entrepreneurial skills and business skills12, where: Entrepreneurial performance is based on the starting of a business/utilizing an opportunity and growth of the business idea. Motivation is the entrepreneurs level of need for achievement. Entrepreneurial skills include creativity, innovation, risk-taking, and the ability to interpret successful entrepreneurial role models and identification of opportunities. Business skills include being able to formulate business plans, and financial, marketing, operational, human resources, legal, communication, and management skills.13

11 Ladzani, and van Vuuren, 156 12 Ibid, 157 13 Ladzani, and van Vuuren, 157

Furthermore, although the provision of training is critical for the development of the workforce, great emphasis must also be placed on the content of what is provided. An analysis of the needs of the workforce, market trends, and the expertise of the trainers should all play a role in the design of the training programs. From the study, some key recommendations for public and private organizations are that: Existing training firms should revise their training materials SME service providers should benchmark their services with successful similar institutions Educational institutions should introduce and/or strengthen entrepreneurship education Emerging and potential entrepreneurs should be encouraged to take courses in entrepreneurship14

The value in Africas workforce will grow with the development of the value in its capacity. Therefore the key to developing the value of this workforce lies in the provision of programs and training to strengthen the quantity and quality of work produced.

The majority of research conducted on innovation is done in the context of firms established in developed countries.15 As a result, the relevance of the innovation process in firms doing business in developing countries is not always properly acknowledged.16 It is important to note that much of the existing research has examined product innovations and neglected ideological innovations such as new management practices, which offer opportunities for further development.17 This section explores the current research on innovation and its relationship with entrepreneurship in Africa. The benefits of a thriving SME sector are numerous and include the potential for a country to generate employment, develop its domestic economy, and engage in international trade.18 It is suggested that adequate economic growth is unlikely to be achieved solely from domestic provision of the basic national development needs. Instead, the sale of innovative goods and services in export markets generates foreign exchange that can enhance domestic development.19

14 Ibid, 160 15 Ibid. 16 Ibid. 17 Ibid. 18 Robson, Haugh, and Obeng, 332 19 Ibid.

Entrepreneurship and Innovation in Ghana: A Case Study

In a study conducted by Robson, Haugh, and Obeng20, 496 entrepreneurs in Ghana were surveyed to develop a multi-level theoretical framework. Seven types of innovation activity were investigated while taking into account factor like the characteristics of the entrepreneur, the internal competencies of the firm, and firm location. This study revealed some key findings: Across all the respondents, the occurrence of incremental innovation was far greater than that of new innovation. Although incremental innovation may seem like the lesser of the two kinds, it offers a wise and cautious approach for enterprises in developing countries. This enables entrepreneurs to manage risk by building on previous innovations. The degree of innovation was highly correlated with the education level of the entrepreneur. This finding raises concerns about the level of potential development in Africas innovative SME sector. Firm size and involvement in exports were more positively related to innovation that firm growth was. The incidence of innovation was greater in firms that were located in conurbations compared to firms located in large and small towns.

To enable the flow and exchange of ideas and for the development of innovation, government policies and funding programs are needs to serve as a safety net and lessen the impact of innovation failure for entrepreneurs. This presents unique investment opportunities for investors who seek to benefit from the rich financial potential of entrepreneurship in Africa.

20 Paul, Haugh, and Obeng, 331 - 350

Entrepreneurship and the Private Sector

Engaging and Developing the Private Sector
In many African countries, the private sector offers an ideal format for the commercialization of innovation and development of entrepreneurship. A key challenge is the lack or poor quality of infrastructure to support and facilitate innovative enterprises. Furthermore, there is a lack of incentive for enterprises to provide innovations in industries that are not optimally profitable. On the other hand, public sector organizations have expert knowledge of the local needs and systems, but lack the resources to generate and sustain innovative solutions. Partnerships between the public and private sectors offer the opportunity to develop profitable businesses, which solve problems relevant to infrastructure and economies.

The Nature and Benefits of PPPs

Public-Private Partnerships can be defined as collaborations between municipalities, the private sector, and the civil society to commit to working together on a project or programme in order to pursue common goals and in which the different partners bring complementary resources, contribute to the design of the program, and share risks and benefits21. PPPs offer a variety of potential benefits: An increased accessibility of innovations for economic development Synergy of the capabilities of different sectors Access to a greater number and quality of resources such as technical expertise, human resources and financial capital Increased involvement of civil society and private sector groups in local affairs Improved transparency and accountability between partners22 Partnerships can take on a variety of forms such as service contracts, build-operate-transfer concessions, and joint ventures.23 Government roles can range from provider to enabler to regulator.24 It is argued that PPPs can function only to extent that the goals of the major stakeholders are compatible as well as understood and accepted by all parties. 25 One challenge for both public and private companies is the management of the respective institutional interest with administrative decision making as a partnership. For unregulated governments there is a risk of bribery, and for private companies there is a risk of being manipulated by governments who hold legislative power.

21 Rogerson, 441-2 22 Rogerson, 443 23 Ibid. 24 Ibid. 25 Ibid.

Example: Sustainable Agricultural Development

African countries have generally faced sustainability issues and stagnation in average yields, due to underinvestment in the development of agricultural markets, crop improvement, and the sustainable management of agricultural systems.26 The gap in investment can be attributed to a low public sector funding for agricultural research, and initial lack of incentives for the private sector groups to enter the market.27 Non-profit organizations generally bring products and solutions to developing agricultural markets. However the level of innovation is often limited by restraints in funding and resources. Motivated by the financial rewards of commercializing new technologies, private companies offer expertise in product development, marketing and delivery. Public sector organizations can be helpful in the introduction of new initiatives due to their understanding and expertise in their respective regions. One key challenge for private organizations is the competition from government donations to farmers. As a result, farmers may require addition incentive to participate in PPP programs.28 According to Ferroni and Castle, PPPs offer the opportunity to overcome the private sectors inability to operate where the market is poor, and the public sectors limited ability to market research outputs. With effective organizational strategies, PPPs can add value to the agricultural markets in many African developing countries from the synergies they create.

Example: Healthcare
In the 1980s and 1990s, a combination of staggering deficits in health care delivery and structural adjustments of the World Bank and International Monetary Fund induced drastic cuts in public expenditure and steady disengagement of the state in essential social welfare provision.29 The poor state of health provision in sub-Saharan Africa has triggered creative convergences in health care delivery. Over 75 health-related PPPs such as the Roll Back Malaria Global Partnership, Global Network on Household Water Treatment, The International AIDS Vaccine Initiative, Bill and Melinda Gates Childrens Vaccine Program, and The African Comprehensive HIV/AIDS Partnerships.30 Despite the promising benefits of PPPs in healthcare, the challenges are multidimensional and complex. Partnerships offer added value from local and transnational cooperation and synergies at local, national, and international levels. However it is advised that partnerships need to be purposeful rather than ad hoc. They must also be flexible and dynamic enough to adapt to a changing context, incorporate new partners, and respond to emerging needs.31 It is also strongly recommended that governments formulate and uphold clear national policies. They must also maintain a sustainable governmental commitment to national programs and not rely on the support of partnerships.

26 Ferroni, and Castle, 1064 27 Ibid. 28 Ferroni, and Castle,1066 29 Lo, 215 30 Lo, 215 31 Lo, 232


The Way Forward: Challenges & Opportunities

MSMEs Investments: Access to Finance
Challenges: Designing a universal framework for the selection of funding recipients Monitoring the progress of recipients and enforcing accountability Opportunities: Access to innovative businesses and solutions that could generate significant returns once provided with the required financial resources Recommendations: It may be beneficial to use individual level criteria when selecting recipients for funding from banks, donors, and agencies.

Government support: Entrepreneurship Training Programs

Challenges: Deficiency in the education, business experience, and management skills of entrepreneurs Limited innovation potential due to limited financial funds available to entrepreneurs, and thus the higher impact of innovation failure on their economic survival. Opportunities: Greater quality and quantity in production with the building of capacity Enable to the flow and exchange of ideas for the development of innovation Recommendations: Additional training for entrepreneurs in addition to individual level consultations. Training courses must be evaluated objectively, with modern requirements, and with researched concepts. More support for the entrepreneurial culture in schools, universities, and government bureaucracies.

Regulatory Reform: Research and Policy

Recommendations: The perspectives of small-scale business-owners and their concrete actions must be considered more thoroughly and frequently. The perceptions that entrepreneurs have about business constraints and how they address them must be understood and considered in research and policy. Both research and policy must take into account the various levels of analysis which are the individual level of the small-scale entrepreneur, the group and company level, the network level, and the national and international levels.

Ferroni, Marco, and Paul Castle. "Public-Private Partnerships and Sustainable Agricultural Development." Sustainability. 3. (2011): 1064-73. Print. Froumentin, Max, and Stephane Boyera. "Mobile Entrepreneurship in Africa, IT in Emerging Markets." IT Pro, IEEE Computer Society. (2011): 60-62. Print. Ladzani, Watson, and Jurie van Vuuren. "Entrepreneurship Training for Emerging SMEs in South Africa." Journal of Small Business Management. 40. (2002): 154-161. Print. Lo, Marieme. "PublicPrivate Partnerships for Maternal Health in Africa: Challenges and Prospects."Marriage & Family Review. 44. (2008): 214-37. Print. Naud, W A;Havenga, J J D. Research On Entrepreneurship And Small Business In Africa. ARPENT: Annual Review of Progress in Entrepreneurship; 2002/2003; 2, ProQuest Entrepreneurship:13 37.Print. Nsouli, Saleh M, Capacity building in Africa: The role of international financial institutions Finance & Development; Dec 2000; 37, 4; ABI/INFORM Global. 34 37. Print Robson, Paul, Helen Haugh, and Bernard Obeng. "Entrepreneurship and innovation in Ghana: enterprising Africa." Small Business Economics. 32. (2009): 331-50. Print. Rogerson, Christian. "In Search of Public SectorPrivate Sector Partnerships for Local Economic Development in South Africa." Urban Forum. (2010): 441-56. Print.


Disclaimer This publication contains general information only, and Sub-Saharan Consulting Group is by no means of this publication, rendering professional advice or services. Consult a qualified professional before making any decisions or taking actions that may affect your finances or business. Sub-Saharan Consulting Group 2012 Designed and written by Sharon Obuobi