Entrepreneurship:Giving SMEs more support will spur Africa’s growth

Hardly a week goes by without the media mentioning how important it is for Africa to develop its small businesses (SMEs).  This is because SMEs are better positioned to solve the problems of unemployment and spread wealth more evenly to a larger number of people.
Some of the 10 young entrepreneurs who are competing for the REAL Fina Bank Entrepreneurship Award 2013 organised by Educat, an entrepreneurship support NGO, and is sponsored by Fi....
Some of the 10 young entrepreneurs who are competing for the REAL Fina Bank Entrepreneurship Award 2013 organised by Educat, an entrepreneurship support NGO, and is sponsored by Fi....

Hardly a week goes by without the media mentioning how important it is for Africa to develop its small businesses (SMEs).  This is because SMEs are better positioned to solve the problems of unemployment and spread wealth more evenly to a larger number of people.

From street vendors, to young techs and a growing number of self-made millionaires, Africa is a continent beaming with entrepreneurs. However, pursuing entrepreneurship as a career has only recently started gaining acceptance and legitimacy largely because, for the most part, African entrepreneurship culture is defined by necessity. In the absence of government safety nets, sufficient jobs for college graduates, and opportunities for poor youth, many individuals start businesses just to earn a means of survival.

It’s only recently that the term “entrepreneurship,” has shifted from signifying a “way of life” or a means of survival, towards being a proxy term for systemic “success and growth”, now used as a buzzword for philanthropists, development agencies, governments, and individuals across the continent. The pursuit of entrepreneurship as a “career” is becoming generally accepted that this is the way forward.

People have now understood that the era of the large paternal companies that employ thousands of ‘well looked after’ staff is not viable.

“Entrepreneurship has become part of every day use, but the heady theoretical view on what makes someone an entrepreneur is often lost when we are faced with the practical realities.

No matter how much we like the idea of entrepreneurship as the solution to unemployment, not everyone is born as an “entrepreneur” or naturally has the inherent skills to succeed. 

Most of those who start small business are simply trying to create income in order to survive. They face many challenges trying them survive, mostly a lack of industry expertise which impacts innovative and competitive capacity – particularly among younger entrepreneurs.

Entrepreneurship is often a means of survival, a last resort, not the pursuit of opportunity or aspiration. That is why it is important to start changing the mindset from necessity to opportunity, and discarding outdated definitions of success (like wealth and lifestyle) rather than business acumen and entrepreneurial flair.

A report on entrepreneurship challenges in Africa released this year by the Omidyar Network in partnership with the global strategy consulting firm, Monitor Group, lists financing, skills and talent followed by infrastructure as Africa’s greatest challenges.

Financiers decry that many new ventures are simply not fundable and lack fundable business plans, with issues ranging from the quality and feasibility of the business idea to the commitment of the entrepreneur.

The report notes, however, that finance is not the determining cause of a venture’s success or failure. Instead, it is “the entrepreneur’s ability to adapt to market changes and copes with uncertainty, as well as their level of tenacity” that are greater determinants of a business’ success. Entrepreneurs also forget about market access, and that without multiple product channels, revenues and profits are likely to stall. This lack of growth makes funders hesitant to invest.

Education and training

The Omidyar Network and Monitor Group report suggests that management and other entrepreneurial skills should be fostered in schools. Entrepreneurs in Africa need skills to enable them start or grow a business successfully. This calls for a need to start teaching entrepreneurship at primary and secondary levels.

Low focus (in schools) on the practical skills required for starting, managing or working in entrepreneurial ventures means that there are limited opportunities for hands-on learning and managing small projects.

This translates into students not being given clear paths for cultivating competencies related to practical thinking and creative problem solving — skills needed to successfully build and manage a business. As a result, most Afro-entrepreneurs do not feel adequately trained to manage new firms.

Administrative burden

The World Bank ranks 189 countries on the “Ease of Doing Business” annually, and in the latest report, 16 of the 20 nations at the bottom of the Doing Business index are in Africa.

Despite many acknowledged recent reforms, many African countries still place very high administrative burdens on SMEs. Rwanda clearly stands apart from its peers as it’s ranked the second easiest place to do business in Africa. This shows that other countries are also capable of reducing the excessive costs, time and bureaucracy associated with regulatory compliance to encourage startups to enter the regulated environment. Reforms should aim to continue to reduce red tape and create a more enabling environment for new businesses.

One thing is clear: running your own business is risky. Small business owners invest everything in startups; their precious time, pride and personal finances. Small businesses can feel like a natural extension of their owners and failure can hurt both emotionally and financially. Therefore, it is not acceptable when good business ideas fail due to lack of information or support. Greater emphasis must be placed on the changing the mindset, nurturing a culture of entrepreneurship as a career, entrepreneurial education and skills training, and business advisory services that seek to provide small business owners and prospective owners with sound practical advice.

Every business that succeeds helps create jobs, which has the dual affect of reducing unemployment, as well as creating more business opportunities.  Although an entrepreneurial culture is emerging in Africa, the lack of business acumen and finance continues to limit the type of high-impact businesses needed to create sustainable growth and improve lives.

The writer is a director in technology advisory services at PwC Rwanda

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