THE MANY PROBLEMS OF AFRICAN ENTREPRENEURSHIP IN THREE SHORT HEADINGS
July 24, 2021
Over the last ten years, the concept of entrepreneurship has seen increasing popularity. In African countries, many young people are taking the risk to venture into business and explore new opportunities to solve their most pressing problems. This in itself is a win for a continent that boasts more than 60% of its population made up of young people; so, to see increased entrepreneurial activities is something that makes us proud.
However, as entrepreneurship begins to take shape in the continent, multiple problems that act as barriers start to arise. Bringing simple context to these challenges will hopefully provide clarity on the crucial next steps for entrepreneurship growth on the continent. While these problems are generally very visible as a result of the increase in entrepreneurial activities, it is important to note and celebrate the tremendous success that has been achieved by entrepreneurs in the continent in the last five years. The continent has seen and continues to see the rising of unicorn status businesses (businesses that have achieved a billion dollars valuation) like Flutterwave, Interswitch, Jumia Group, to name a few.
An overview of the biggest problems faced and their unique solutions different by ecosystem will provide a well-rounded view of the situation. For instance, more advanced ecosystems like South Africa, Kenya and even Nigeria may be way ahead of the rest in providing solutions to what is highlighted here. Hence it is important when reading this article to consider it as a mere overview of what the majority of entrepreneurs face in the continent rather than a detailed report on the problems covered. The problems have been carefully highlighted to capture the experience of the author working and researching entrepreneurship in Africa.
As the continent continues to experience an increase in entrepreneurial activities, there continues to be an increase in the need to provide entrepreneurs with the right skill sets to grow their businesses and become profitable. As such, the continent has seen an increase in the number of hubs and accelerators from the private and public sectors as well as from international partners. However, most of the programs curated for these new breeds of entrepreneurs are not as accessible as they say they are. According to the African Development Bank, the continent has about 650 active tech hubs, including accelerators, incubators, university-linked startups, support labs, maker parks, and co-working spaces. However, most of these are concentrated in very few countries like Egypt, Kenya, Nigeria etc, leaving many others with less than five active tech hubs with less than five full-time staff (e.g Sierra Leone has less than five active tech-hubs).
The continent has come a very long way, considering where it was ten years ago, it is, however, not nearly enough to provide the level of entrepreneurship education needed to cater for the growing numbers of entrepreneurs in Africa. In most cases, providers of entrepreneurial education are usually centralised in capital cities and some instances, are in it not to increase the ability of entrepreneurs, but rather to gain/attract the attention of as many funds as possible for themselves under the guise of entrepreneurship education.
Conversely, some entrepreneurs often participate in acceleration programs only for the possible funding opportunities and not the education. As a result, many of them go through these programs and come out with little value add-on. This behaviour could be attributed to the fact that many entrepreneurs on the continent were pushed into entrepreneurship as a means of survival and not to build value in their community or create impact at large.
Many governments across the continent are conspicuously oblivious to the needs of entrepreneurs or the growing needs of young people. This is not to say that many of them have not tried over the years to put policies together to promote entrepreneurship. However, many of the policies implemented have been used to serve the purpose of scoring political points rather than to genuinely promote entrepreneurship.
Entrepreneurs on the continent still find themselves directly competing with government officials who themselves operate private businesses. It has become a common practice for government officials to position their businesses or ones with their interest, to gain an undue advantage over the majority of entrepreneurs. While this is not an absolute deterrent for some but many, especially with nations that have small market sizes, it becomes difficult to run a profitable business without directly competing with government officials, in which case the entrepreneurs stand no chance.
The role of governments in providing the needed support to improve the African entrepreneurship landscape can NEVER be overstated. Many discussions have been held to amplify the role the government has to play to curb issues around corruption, ease of access to permits and licensing, unstable and costly access to electricity, confusing laws around customs and trade, high tax rates and inconsistent tax administration, and political instability; just to name a few. All of these according to the African Development Bank are barriers to the growth of entrepreneurship on the continent.
African governments and their international partners have to be more deliberate with policies that affect entrepreneurship. With the intent to not only be SEEN but to effect a viable change, especially if the continent is to fully benefit from AFCFTA (Africa Continental Free Trade Area).
The process of policy development and implementation needs to have a continuous engagement with entrepreneurs. For instance, the ride-hailing sector in Nigeria is struggling as a result of sudden changes in regulations coupled with poor infrastructure and stiff competition.
Access to Capital:
The issue of access to capital is NOT unfamiliar in entrepreneurship. If you were to ask ten struggling entrepreneurs why their businesses have not grown within the last two years, it is safe to say at least six of them will cite access to capital as the primary reason. This is how relevant access to capital is to the growing population of African entrepreneurs. The financial system on the continent is still not as robust as in other parts of the world. It was not until after the 2008 financial crisis that many more pan-African banks started exploring the continent and its huge financial potential. With a struggling financial system, banking institutions in most places continue to charge a very high interest rate for entrepreneurs, making loans very expensive and almost impossible to take out.
While most of the financial institutions in Africa are slow to react to the increasing need of entrepreneurs for loans, investment and the like, venture funds are becoming even more prominent. Irrespective of the fact that venture capital and private equity are very much in their early stage on the continent, the mere fact that their presence is being felt every other day is a sign of hope. Entrepreneurs in the continent are beginning to benefit from venture capital and private equity, in the first half of 2021 alone, a total of about $1.2 billion was raised. With deal sizes ranging from $1million and upwards, Nigeria and South Africa led the way in this race according to a report by Africa: The Big Deal.
Let us not get carried away, funds being provided to entrepreneurs on the continent whether, through grants from local/international organisations or through venture capital and private equity funds, are usually very saturated in certain countries and almost non-existent in most. With South Africa, Egypt, Kenya and Nigeria accounting for about 80% of the financing in 2020, the rest of the continent is left to play catch-up.
It is important to note, that unless the founders have the right entrepreneurial education, backed by a relatively sound ecosystem, it is almost impossible to attract venture capital and private equity funds. Access to capital in itself is directly related to entrepreneurship education which is influenced by government policies.
To sum it up, the many barriers to “Scalable Entrepreneurship” are NOT so many at all, if broken down into the key areas highlighted above. Entrepreneurs with the right entrepreneurial education can build effective, scalable, and disruptive businesses with the right government policies to support them, thus attracting investment through venture capital, private equity and grants. The approach cannot happen in tandem, but rather one that all ecosystem stakeholders must work together to build a robust ecosystem that puts entrepreneurs and their needs at the forefront.
AFDB White Paper:
ENTREPRENEURSHIP AND FREE TRADE- Africa’s Catalysts for a New Era of Economic Prosperity – Volume I