Development initiatives and investment in Africa and other under-developed areas of the world have traditionally tried to encourage entrepreneurs. After all, economic growth has its roots in small businesses. Entrepreneurs beget employment and prosperity. Until recently, much of the interest in stimulating Africa’s entrepreneurs has been largely thought of as a failure. But, it seems, we probably weren’t looking closely enough. Entrepreneurialism is alive and kicking throughout Africa.
Research has found that small and medium-sized enterprises are responsible for a large percentage of the formal jobs in the developing world. Roughly two billion people in the world live on $2 a day or less. Of these, a staggering 50 per cent are microentrepreneurs, running small businesses to make ends meet but employing only a handful of people. If just a small proportion of these entrepreneurs were encouraged to grow and invest in their business, and hire more employees, it could transform the fortunes of the developing economies, and billions of people living in poverty.
As a report from the Global Entrepreneurship Monitor (GEM) puts it: “While entrepreneurship may not be a panacea, it can most certainly form part of the solution.” Real GDP increased by 4.9 per cent from 2000 to 2008 in Africa – double the growth rates of the previous two decades. While the headlines tend to focus on the extraction of raw materials and the involvement of Chinese capital, the rise of African entrepreneurs may turn out to be the real story.
Increasingly, the emphasis in Africa is on encouraging and enabling entrepreneurs to start and develop their businesses. Among those championing this change in direction is London Business School’s Michael Hay.
Hay, a Professor of Management Practice, was born in South Africa. He left the country at the beginning of the 1960s and only returned in 1996. At passport control on his arrival in the country, the immigration official inspected his passport and noted his birthplace. “Welcome home,” she said. Hay’s return to South Africa proved a powerful personal and professional experience. In particular, it opened his eyes to the potential and the existing obstacles to African entrepreneurs. “More aid won’t solve the problems of Africa,” he says. “You maximise economic wellbeing by maximising the number of people who are economically active, rather than passive. And one of the best ways of being an economic actor, rather than a spectator, is to start, build or work in a sustainable, employment generating business.” Since then, developing Africa’s entrepreneurs – in South Africa and beyond – has been the focus of Hay’s work.
Small business, big obstacles
The problems facing small businesses in Africa are widely acknowledged. Research by the Global Business School Network identifies a number of obstacles to African entrepreneurs: poor education, inefficient regulations, poor access to finance and start-up capital, social and cultural norms. Mike Herrington is team leader for GEM in South Africa. Himself an entrepreneur, his research offers increasingly compelling evidence of an entrepreneurial revival in a number of African countries. “There is an entrepreneurial culture in Africa but over the last five years things have really changed. Governments are promoting entrepreneurship and countries such as Nigeria and Ghana are going through radical change,” says Herrington. GEM looks at perceptions of entrepreneurship, activity rates and the capabilities of individuals.
GEM’s research in ten sub-Saharan countries (Angola, Botswana, Ethiopia, Ghana, Malawi, Namibia, Nigeria, South Africa, Uganda and Zambia) presents a realistic and generally positive picture. There are some surprises in the research. Entrepreneurs in the region have an extremely low fear of failure – only 24 per cent say that fear of failure would prevent them starting a business. This is far lower than elsewhere in the world – only Latin America and the Caribbean come close (28 per cent). Interestingly, Africans often perceive entrepreneurship more positively than people elsewhere in the world.
In Botswana, for example, 76 per cent of people regard entrepreneurship as a good career choice. The average in Europe is 58 per cent. Similarly, in Ghana 91 per cent of people say that successful entrepreneurs are granted high status. In Europe the figure is 69 per cent. Most encouraging of the reams of statistics generated by GEM is the extremely high level of entrepreneurial activity in a number of African countries. The key indicator used by GEM is total early-stage entrepreneurial activity (TEA). This measures the percentage of adults who are starting or have just started a business. Zambia with 41 per cent; Ghana 37 per cent; Nigeria 35 per cent; and Angola, 32 per cent, have among the highest TEA levels worldwide.
The glaring exception to this good entrepreneurial news is South Africa, the biggest economy in the region. Only seven per cent of South Africans are starting or have just started a business – against an average of 28 per cent. An inadequately educated workforce (especially in maths and science) combined with an inefficient and corrupt government bureaucracy is having a potentially devastating impact. “The same things apply in Africa as elsewhere,” reflects Herrington. “For entrepreneurs and their businesses to thrive we need to close the gap between what people are educated in and the needs of business; we need to cut down the regulatory requirements to start a business; and we need to eliminate corruption.”
Hay was the originator of GEM in 1999 – with Bill Bygrave of Babson College – and it now encompasses 69 countries. To make an entrepreneurial difference in Africa, Hay argues that the need is clear. “Often it’s not money would-be entrepreneurs lack, it’s the knowledge and skills and confidence – the management capital – to enable people to build strong, employment generating small businesses. We need to give emerging market entrepreneurs the tools and skills to build businesses which, in turn, will become the locomotive for economic growth.” He has championed a variety of initiatives to bring this managerial capital to as many African businesses as possible. He acted as Dean of a business school in Johannesburg which offered virtually free undergraduate education and launched the Business Bridge.
Most recently, Hay and Rajesh Chandy of London Business School have been involved in the African leg of the Global Business Experience part of the London Business School MBA programme. This took MBA students to the township of Alexandra on the banks of the Jukskei River on the outskirts of Johannesburg. Once home to Nelson Mandela, Hugh Masekela, Zanele Mbeki (wife of the former president) and a number of cabinet ministers, Alexandra’s continuing poverty provides compelling evidence of the challenges facing the nation. With a population of 179,000, Alexandra’s residents are tightly packed – with a population density of 67,000 per square mile compared with 13,690 in the city of London.
“If you are a multinational, it is in your own best interest to develop the skills of micro entrepreneurs who are often the distributors and customers for their products in developing countries. Some multinationals now appreciate that is the case,” says Chandy. “What was striking was the yawning gap between what most of us assume about the lives of people in townships and the actual reality. Even a week’s experience can give you insights that many who have lived close by for their entire lives simply do not have.”
The MBA students spent time in the township working with entrepreneurs to help them develop their businesses, as well as visiting larger businesses. The 16 micro businesses with fewer than five employees and an appetite for growth ranged from small restaurants to stores and a barber’s shop. “From the point of view of the students, they learn how to apply what they have learnt in the classroom. They learn what works and what doesn’t work,” says Hay. “The important thing is that this is not some form of tourism. Our focus is on business tools in action. These are real businesses that we track over time.”
Some of the input from the MBA students appears simple. They came up with a straightforward spreadsheet so an internet café could manage its income and outgoings more efficiently. They helped other businesses come up with Facebook pages to attract younger customers. “It is easy to spout jargon rather than coming up with something practical right now,” observes Chandy. “Managerial capital is actually what is needed. Managing cash flow and looking after your customers are universal but perhaps even more important in micro businesses where they can mean the difference between survival and failure.” Follow-up with the entrepreneurs revealed that virtually all had implemented the recommendations that came from the students. Sometimes, these were life changing. One store owner was struggling in the face of competition and took up the suggestion that she lease her store to the competing store and concentrate on her real passion in life, baking. She now supplies her old store with freshly baked cakes. This is how revolutions begin.
Mike Herrington and Donna Kelley, ‘African Entrepreneurship: Sub-Saharan Africa Regional Report’ (Global Entrepreneurship Monitor, 2012);
‘Education, employment and entrepreneurship: A snapshot of the global jobs challenge’ (Global Business School Network, June 2013)