- 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 livelihoods of Africans have not kept pace with macroeconomic growth, and per-capita 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 challenges 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, and Tanzania. The survey was augmented by 72 in-depth interviews and then benchmarked against 19 global peers.1 The survey focused on four critical aspects of entrepreneurial environments:
• Entrepreneurship assets: financing, skills and talent, and infrastructure
• Business support: government programs and incubators
• Policy accelerators: legislation and administrative burdens
• Motivation and mindset: legitimacy, attitudes, and culture
The initiative’s second phase brought together business, government, and thought leaders to analyze the survey findings and to examine the state of entrepreneurship 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 presents [End Page 149] 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 recommended actions needed to accelerate entrepreneurship on the continent.
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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. However, despite these positive signs, the business landscape in the region presents a number of challenges that prospective entrepreneurs must transcend. We outline the opportunities and challenges Africa’s entrepreneurial ecosystem is facing, and the key practices that we believe will spur the continent forward.
Entrepreneurship Assets: Financing, Skills and Talent, and Infrastructure
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 perceptions 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. [End Page 150]
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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, and 19 percent say they used private equity (see figure 1). However, once these sources are exhausted, entrepreneurs face the challenge of tapping other...