Five ways to promote entrepreneurship in Africa

Africa needs accelerated structural transformation in order to take the bulk of its population out of poverty. This requires deeper investment in factors leading to growth-enhancing structural change. African countries need to diversify and expand their sources of economic growth while creating opportunities for more inclusiveness. The vision will lead to most African countries attaining middle income status by 2060 cannot be delinked from the prerequisite of creating technological-driven and competitive industries in Africa.

The continent’s economy is projected to grow at the rate of 4.8% in 2013 compared with 4.5% in 2012 and 3.4% in 2011. Such growth prospects are influenced by the rising African middle class (about 300 million), significant land mass (about 50% of world’s surface), new large discoveries of oil, gas and other minerals (about 10% of world’s oil reserves and 8% of world’s natural gas reserves), strong and visionary leadership, an emerging consumer market and dynamic private entrepreneurs, among others.

However, a number of drivers of change can turn out to negatively impact the development outcome of Africa if the right policies are not implemented. Those drivers of change include the changing global economic landscape, climate change impact, renewable and non-renewable natural resources, the demographic transition and the skills attribute of the African workforce.

The importance of private sector development and its crucial rule in financing and accelerating Africa’s economic transformation cannot be overstated. However, when the underlying environment is weakened by poor or inadequate infrastructure, limited access to finance, government bureaucracy, shortage of skilled labour force and market inefficiencies, there is very little a vibrant private sector can do to contribute to economic growth and development.

While African governments should strive at ensuring a conducive business environment and enforcing flexible local policies that promote private entrepreneurship, the private sector should take a more proactive role in addressing the structural challenges to enhancing business services and providing opportunities for innovation and competition.

The private sector in most African countries is fragmented with a low density of economic activity. The limited availability of skilled labour and human capital further obstruct the growth of firms. In fact, the lack of high and technological-related skills reduces prospects for moving up the value chain in industries, which end up reducing labour productivity and existing industries’ competitiveness. Also, the slow progress of Africa in adapting to new and emerging technologies impacts productivity and growth. This has contributed to domestic economies void of a competitive advantage and lagging behind those of other developing countries.

However, the potential and opportunities are abundant. Such potential include the growing middle class, the geographic size, the wealth in natural resources and the improving political stability. As the continent presents opportunities for higher returns, the private sector should drive the transformation agenda.

The following are determinants for the success of entrepreneurship development and structural transformation in Africa.

1. Investing in education and vocational education and training as means to strengthen the skills base of the African labour force. This should be coupled with more flexible labour market policies that encourage skills combination and labor mobility.
2. Governments and regional economic communities should enact agreements and strategies aimed at improving the regulatory environment for business and promotion competition. This will support the ongoing initiatives to close Africa’s infrastructure investment gaps.
3. Attract investments in the most dynamic sectors. This will equip African countries with effective means to advance structurally with a strong technological base. The key objective should be to diversify towards a mix of primary, manufacturing and services sectors based on the comparative advantage of individual economies.
4. Make more efficient use of the business incubator model to facilitate the establishment and growth of small and medium enterprises (SMEs). The business incubators will support nascent enterprises with start-up capital, innovative ideas and growth prospects. It is well established that SMEs play a key role in creating employment, developing a skilled workforce and responding to various market demands.
5. The emerging economies (BRICS) and the African diaspora could contribute to Africa’s structural transformation by providing sources of investment, transferring skills and know-how, and creating opportunities for Africa’s integration into the global economy.

Author: Mthuli Ncube is Chief Economist and Vice-President with the African Development Bank.

 Image: A broker watches the stock exchange in Zimbabwe REUTERS/Howard Burditt