Understanding Africas Challenges To Creating Opportunity Driven Entrepreneurship

Description
During this elucidation around understanding africas challenges to creating opportunity driven entrepreneurship.

Understanding
Africa’s Challenges
to Creating
Opportunity-driven
Entrepreneurship
Developed in partnership with
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01
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Entrepreneurship Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Skills and Talent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Infrastructure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Business Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Business Advisory Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Government Programmes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Incubators. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Policy Accelerators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Administrative Burdens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Motivations and Mindset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
The Way Forward. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Appendix - Country Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Ethiopia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Kenya. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Nigeria. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Tanzania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Ghana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
South Africa. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
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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 GDP levels 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 in-
formality into one that is vibrant and robust enough to promote
sustained economic growth and generate long-term, viable
livelihoods across the continent.
To better understand the state of entrepreneurship in Africa,
Omidyar Network launched the Accelerating Entrepreneurship
in Africa Initiative in 2012. To execute this multi-phase research
project, we were fortunate to partner with the Monitor Group,
and together we set out to identify the challenges facing
African entrepreneurs and pinpoint the most trenchant barriers
that inhibit high-impact entrepreneurship.
The ?rst phase of the initiative commenced with a survey of
582 entrepreneurs in six Sub-Saharan African countries:
Ethiopia, Ghana, Kenya, Nigeria, South Africa and Tanzania.
That survey, in turn, was augmented by 72 in-depth interviews
02
INTRODUCTION
Sub-Saharan African Countries for Regional Comparison
FIGURE 1
Ethiopia
Nigeria
Ghana
South Africa
Kenya
Tanzania
Countries for Peer Group Comparison
China
Ghana
Singapore
USA
Denmark
Kenya
Tanzania
Chile
India
South Africa
Egypt
Nigeria
UAE
Columbia
Jordan
South Korea
Ethiopia
Russia
UK
03
This report presents the ?ndings of the entrepreneur survey,
the outcomes of the workshops in Accra and the conclusions of
the third, and ?nal phase, of the initiative: the recommended
actions needed to accelerate entrepreneurship on the continent.
We are happy to report that a culture of entrepreneurship
is growing in Sub-Saharan Africa, with indicators related to
entrepreneurial motivations at least on par with or higher
than global peers. However, despite these positive signs, the
business landscape in Sub-Saharan Africa provides a number
of challenges that prospective entrepreneurs must transcend.
The following pages outline the opportunities and challenges
for Africa’s entrepreneurial ecosystem, also summarised in
Figure 2, and the key recommendations that we believe will
spur the continent forward.
Malik Fal
Managing Director
Omidyar Network Africa
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 programmes and incubation.
• Policy accelerators:
Legislation and administrative burdens.
• Motivations and mindset:
Legitimacy, attitudes, and culture.
The second phase of the initiative brought together business,
government and thought leaders to analyse the survey ?ndings,
as well as more closely examine the state of entrepreneurship in
Africa. The sessions were held in October 2012 at the inaugural
Entrepreneurship in Africa Summit in Accra, Ghana. The summit
was convened by Omidyar Network in collaboration with the
African Leadership Network and the Monitor Group and
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.
INTRODUCTION
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Entrepreneurship Assets Business Assistance
Policy
Accelerators
Motivations
Infrastructure is
inadequate and
unreliable
Increasing legitimacy of entrepreneurship
and positive attitudes towards risk
and other challenges
There is a greater need
for support services given
a lack of skills
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administrative burdens
encourage informality
Access to capital
is limited for new
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FIGURE 2
Sub-Saharan
Africa’s
6th Level
Composite
Indicators vs.
Global Peers
1
The six Sub-Saharan African countries are benchmarked to a peer group, including an additional 13 countries where the Monitor Group has previously undertaken the
Entrepreneurship Benchmarking Initiative: Chile, China, Colombia, Denmark, Egypt, India, Jordan, Russia, Singapore, South Korea, United Arab Emirates, United Kingdom
and United States. This peer group was chosen to allow the focus countries to be compared to a geographically and economically diverse group of countries.
04
ENTREPRENEURSHIP ASSETS
Financing, skills and talent, and infrastructure
?nance their business, and 19% say they used private equity
(see Figure 3). However, once these sources are fully exhausted,
entrepreneurs face the challenge of tapping other sources of
capital. The following section explores the constraints facing both
funders and entrepreneurs, as well as the different frameworks
and structures that could be established by banks, venture
capitalists, angel investors, incubators and large corporations
to increase the availability of ?nancing to entrepreneurs.
45%
19%
18%
5%
5%
4%
4%
Personal/Family Loans
Private Equity
Bank Debt
Government Funding
Venture Capital
Angel Seed
Other
Self Finance and Family Loans are the
Main Sources of Funding
FIGURE 3
The greatest challenge facing entrepreneurs across Africa is the
state of entrepreneurial assets:
1 – Financing
2 – Skills and talent
3 – Infrastructure
The following section outlines the barriers that need to be overcome
and offers recommendations on how to address the structural
de?cits now facing African entrepreneurs.
O
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Supply and access to capital are critical to stimulating
entrepreneurship and economic growth. The International
Finance Corporation estimates that up to 84% of small
and medium-sized enterprises (SMEs) in Africa are either
un-served or underserved, representing a value gap
in credit ?nancing of USD 140-170 billion.
2
In the Monitor Survey, challenges related to accessing
?nance drew mixed perceptions from both the demand
and supply sides. While many Afro-entrepreneurs bemoan
a limited supply of capital, ?nanciers point out that many
projects are not fundable. Seventy-one percent of respondents
believe that there is an insuf?cient supply of equity capital
to start new ?rms. Of the six countries surveyed, Kenya seems
to fare the best in terms of capital supply, given that only 52%
of Kenyan respondents highlight this as a challenge.
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-?ve percent of
Afro-entrepreneurs report that they used family loans to
FINANCING
05
of ?nancing. Equity markets for small and growing ?rms,
however, are still in their infancy in Africa; only 33% of
respondents in the Monitor Survey believe that there is
suf?cient supply of venture capital.
For venture capital to be successful in Africa, entrepreneurs
need to demonstrate to investors that they are pro?t-driven,
interested in maximising returns for themselves and their
?nanciers, and have a potentially pro?table business. Accessing
?nancing is part of a composite of factors that require an entre-
preneur to demonstrate intimate knowledge of their business
model, as well as the operating environment of his or her industry
as a whole. In the words of Paul Harris, the entrepreneurs must
‘know something about everything, and everything about
something.’ The entrepreneur must also have a convincing
story and be able to persuade potential investors that he or she
is better than other entrepreneurs competing for the limited
pool of ?nances.
While capital supply may be limited, ?nanciers note a lack of
fundable business plans, pointing to issues ranging from the
quality and feasibility of the business idea to the commitment
of the entrepreneur and his or her team. This emphasises the
aforementioned point that the entrepreneur needs to focus on
being a rigorous business planner and demonstrate his or her
understanding of a particular sector.
The central issue, according to the panellists who participated
in the Entrepreneurship in Africa Summit, is that ?nance is
not the determining cause of a venture’s success or failure.
Rather, the entrepreneur’s ability to adapt to market changes
and cope with uncertainty, as well as his or her level of tenacity,
are greater determinants of a business’ success. If these
aforementioned qualities are in place, capital will usually follow.
Communication plays a vital role in accessing capital.
Entrepreneurs often view funders’ investment requirements
as onerous and dif?cult to meet. Sixty-four percent of
ENTREPRENEURSHIP ASSETS
KEY POINTS OF DISCUSSION
The cost of funding is prohibitive. While the majority of Afro-
entrepreneurs in ?ve of the six countries indicate that they
know of organisations and programmes that can direct them
to sources of capital, they cite the cost of funding as a primary
reason they are reluctant to access, or even explore, different
avenues of funding. As illustrated in Figure 4, 70% of respondents
believe that the cost of debt capital (and 60% believe that the
cost of equity capital) hinders company formation and growth.
The cost of capital charged by banks and investors is often
so high that it impedes the entrepreneur’s pro?tability. In
some cases, banks require 150% of the borrowed amount in
collateral, thereby automatically disqualifying many from
funding eligibility. Government funding is viewed as dif?cult to
access due to bureaucracy and nepotism (only 5% of survey
respondents used government funding). Many entrepreneurs
admit to being unaware of alternative funding options available
from government or private sources, other than banks. There
is also a lack of ‘patient capital’
3
sources, leaving entrepreneurs
heavily reliant on their network of family and friends to source
capital to start and run their businesses.
Access to ?nance remains a dilemma. Debt ?nancing from
banks is one of the most prevalent funding sources in Africa;
however, it is viewed as an unsuitable funding source for
entrepreneurs given the structure of funding from banks.
Paul Harris, founder of the First Rand Group in South Africa,
states that the risk-reward structure of banks makes them
reticent to invest in start-up ventures. If one considers the fact
that banks’ earnings are capped on loans made, and that nine
out of 10 ventures fail within ?ve years of operation, the risks
are exceedingly high and do not offer a corresponding reward.
Banks make loans using depositors’ savings, which are put at
considerable risk if they invest heavily in entrepreneurial ventures.
Venture capital, where investors share the risk but also the
gain on the equity upside, provides a more appropriate source
The Cost of Accessing Capital is Prohibitive
FIGURE 4
Responses to the statement:
‘The cost of equity capital
hinders company formation
and growth’
Responses to the statement:
‘The cost of debt capital
hinders company formation
and growth’
Agree
60%
Agree
60%
Disagree
22%
Disagree
13%
Neither
18%
Neither
17%
While many Afro-entrepreneurs
bemoan a limited supply of capital,
?nanciers point out that many
projects are not fundable.
2
‘Barriers to Finance Africa’s SMEs’, ABN Digital, 2011.
3
Patient capital is often de?ned as a long-term investment where an investor is
willing to accept a longer-term horizon for return of capital or forgo maximum
?nancial returns in return for social impact.
06
FINANCING
Access to market is a greater challenge than access
to funding. Although many entrepreneurs perceive a lack
of funding as their greatest inhibitor for growth, they often
discredit the effects of a lack of access to market for their
products and the implications this has on acquiring
additional funding to expand. Without multiple product
channels, revenues and pro?ts likely stall, and this lack of
growth makes funders reticent to invest.
The power of networks is critical to shaping an entrepreneur’s
horizon. The size of an idea is shaped by the resources—
?nancially and otherwise—that an entrepreneur has at his or
her disposal to nurture the idea and bring it to life. If an
entrepreneur believes that he or she can raise USD 5,000, the
idea gets adjusted accordingly; if he or she has access to USD
500 thousand, however, the idea is likely to be larger. This
poses dif?culty for entrepreneurs who do not have a network
of potential investors and mentors beyond their family and
friends, as their ventures face a higher chance of stagnation.
Seed ?nancing and angel networks should be more
formalised in Africa. Seed ?nancing and angel networks are
vital to boosting ?nancing for small-scale ventures. Because
the cost of making large-scale investments is equal to that of
small-scale investments, seed ?nancing can be professionalised
to make investing in small-scale ventures more ef?cient and
cost effective. Additionally, angel networks offer entrepreneurs
access to business experience, as well as capital. Successful
examples, such as the Mo Ibrahim Foundation and the
Tony Elumelu Foundation, highlight the changing trends
towards angel and philanthropic investments by Africans.
Hakeem Belo-Osagie, an angel investor from Nigeria and an
Entrepreneurship in Africa Summit panellist, attests that in
Nigeria, successful angels attract funds from other wealthy
individuals who are keen to invest in entrepreneurs.
‘Other’ sources of funding. Four percent of respondents
report funding their business using corporate funding, lease/
receivables ?nancing or stock options (refer to Figure 3).
Some entrepreneurs in South Africa claim that their businesses
are funded using multiple credit cards because most banks
are reluctant to provide a loan to businesses but are willing to
increase limits on the entrepreneurs’ credit cards. This is
a remarkably expensive way to fund a business, but some
entrepreneurs prefer the ease of accessible funding.
Preparedness for funding is key. For entrepreneurs to
successfully secure funding, they must identify the availability
of capital sources and the suitability of capital given their
company’s stage of growth. Entrepreneurs must be able to
assess their funding requirements and identify those funders
that are most likely to fund them. Due to many constraints
and circumstances that limit funding options, entrepreneurs
should be proactive in the fundraising process and/or access
external support when needs arise.
Afro-entrepreneurs express that bank lending policies favour
more well-established ?rms compared to new companies,
given their limited or non-existent historical ?nancial and bank
records. Nearly the same percentage of respondents (57%)
feel that this is also true of ?nancial assistance programmes
and government subsidies.
Funders need to perform a thorough due diligence on
companies in which they invest. Their stringent requirements
are designed to reveal the extent to which an entrepreneur
understands his or her business model, industry and external
regulatory environment. Yet, while a ?nancier may discredit
an entrepreneur who does not meet his or her checklist
of requirements, it is presumptuous to expect that many
entrepreneurs understand these requirements. Entrepreneurs
may not be thinking about their businesses along the same
structured lines as ?nanciers, thereby running the risk of dis-
counting this type of funding as prohibitive or even impossible.
Many of these misperceptions and misunderstandings can be
mitigated by enhanced communication.
In some cases, entrepreneurs are aware of what is required but
cannot meet those requirements, particularly in cases where
new businesses must submit historical bank and ?nancial
statements. To meet the ?nanciers’ requirements to provide
capital to small enterprises, entrepreneurs are challenged with
?nding service providers who can prepare documents,
analyses and reports that will support their ?nancing pitch.
Limited exit options exist for investments. With the exception
of South Africa, business funders in Africa have limited exit
options to recoup their investments. This challenge is most
pronounced in Ghana, where 48% of respondents report that it
is uncommon for business owners to use buyouts to sell their
?rms. Respondents in Ethiopia (42%), Tanzania (41%), Nigeria
(38%) and Kenya (37%) share the same concern. The lack of
viable exit opportunities is a disincentive for making investments
in the ?rst place. The regulations for exiting businesses are also
considered rigid, and there is little awareness about the fact
that large multinational corporations or private equity funds
can sometimes be compelling buy-out options.
Many of these misperceptions and
misunderstandings can be mitigated
by enhanced communication.
07
ENTREPRENEURSHIP ASSETS
Mid-sized enterprise ?nancing in Africa:
• Leverage indirect personal sources of funding, such as
pension funds to fund SMEs, so that more resources are
available to fund more-established enterprises where the
risks are lower. In Singapore, for example, foreign pension
funds are a growing source of capital investment; in the
United States, pension funds are the leading source of
venture capital for minority-owned ?rms.
• Expand or initiate local venture capital investing
ecosystems to ensure that the most appropriate source
of funding is available for companies at the mid-level stage
of development. Typically, mid-sized companies need
banking overdraft facilities to cover predictable working
capital, debt to ?nance certain types of capital investments
and second rounds of equity to ?nance expansions. This
kind of funding can be made available through venture
capital ?rms and possibly private equity funds for the larger
mid-sized companies (circa the USD 70 million threshold).
• Use local banking systems to disburse donor or government
lines of credit to SMEs to reduce prohibitive interest rates
and collateral requirements. This approach puts enterprise
funding in the hands of commercial bankers who are trained
to assess risk and evaluate potential but may lack the kinds
of ‘soft funds’ needed to take slightly less–secured credit-
equity positions. Kenya’s Equity Bank, for example, lends on
preferential rate lines provided by multilateral institutions.
• Provide incentives and support to mid-sized SMEs
to practise sound ?nancial management and maintain
adequate records, including audited statements.
This will help enterprises be more ‘fundable-ready,’ as
investors will invariably ask for reliable ?nancial information.
Later-stage enterprise ?nancing in Africa:
• Create capital-raising engagement programmes with
leaders of well-established private African enterprises
to inform entrepreneurs about the bene?ts of private
equity funding, as well as the bene?ts of listing at local
stock exchanges. This will help alleviate the concerns many
successful African entrepreneurs have about giving up
control of their enterprise brainchild. For instance, in 2012,
India launched an SME stock exchange, which is expected
to lower borrowing costs by 5%.
4
• Create continent-wide ‘regional champions’ programmes
to facilitate access to capital (both debt and equity) for
independently vetted pan-African companies that are
expanding across the continent.
RECOMMENDATIONS FOR FINANCING
Early-stage enterprise ?nancing in Africa:
• Reduce bureaucracy for early-stage companies to access
government funding in order to provide ‘softer’ sources
of ?nancing for less-experienced entrepreneurs.
• Expand or initiate local angel investing ecosystems
to ensure the availability of the most appropriate type of
funding for start-ups, especially for entrepreneurs who lack
the network of friends and family that traditionally play
this role.
• Provide tax and other incentives to formal, as well as
informal (e.g., family and friends), angel investors to make
it easier for people who have extra cash to invest in start-up
businesses and reduce their risk. For example, in Singapore,
investors in start-ups receive tax deductions if the company
fails or if its shares are sold at a loss, and new businesses
receive tax exemptions for three years.
• Provide tax and other incentives for large clients of early-
stage ventures to provide supplier credit to incentivise and
reduce the risks suppliers take when providing generous
payment terms and/or stock to new ventures. In South
Africa, for instance, large businesses get Black Economic
Empowerment procurement points by supporting small
black-owned businesses on favourable terms.
• Educate entrepreneurs about possible sources of funding
outside banking systems. Leverage website portals and
other types of guides so local entrepreneurs have a quick
view of various sources of funding available in their locality.
• Train and assist early-stage entrepreneurs in the intricacies
of capital-raising. When necessary, extend the training to
general business management so that fund seekers under-
stand the ‘language’ and requirements of fund providers
and become better prepared for their fundraising searches.
In the United States, for example, the Small Business
Administration and regional/local governments offer
educational programmes and grants in areas of traditionally
low entrepreneurial activity (e.g., North Carolina Institute
for Rural Entrepreneurship). The Gauteng Investor Centre,
established by the South African government, acts as a
one-stop shop for investors, aimed at removing barriers
between entrepreneurs and funders and, therefore,
facilitating investments into small businesses.
• Train the local ?nancial community to evaluate investment
opportunities on the basis of future prospects rather than
historical cash ?ows. This will help ensure that people
working at ?nancing institutions are better able to evaluate
business prospects and risks inherent to the new ventures
they are asked to evaluate.
4
‘NCR based small and medium enterprises hail NSE SME Exchange,’
The Economic Times, September 2012.
08
SKILLS AND TALENT
The informal sector is pervasive in Africa; as a result
the continent sees a signi?cant amount of informal
entrepreneurism.
This reality often prevents SMEs from professionalising and
thus scaling their operations. In cases where entrepreneurs
have more technical backgrounds, such as information
technology or engineering, or where they have received little
to no business management training, the need for experienced
managerial talent to complement a company’s technical talent
is all the more critical.
The challenge entrepreneurs in Africa—and elsewhere—face
is the ability to attract and retain such managerial talent,
especially in light of severe competition with well-established
corporate ?rms that have the means and security to hire
that talent. Hence, most African education systems focus on
preparing the workforce for employment by more-established
?rms. As highlighted in the Monitor Survey, the existence
(or lack thereof) of entrepreneurship training in the education
system plays a crucial role in this discussion. Entrepreneurs in
Africa require training and education to allow them to succeed
in starting or growing a business. Furthermore, entrepreneurs
need a skilled workforce to meet their business goals.
While 86% of colleges and universities in Sub-Saharan Africa
offer a course in entrepreneurship,
5
Afro-entrepreneurs
overwhelmingly respond that there is an inadequate focus
within schools and tertiary institutions on the practical skills
required to start, manage or work in entrepreneurial ventures.
As highlighted in Figure 5, only 14% of Afro-entrepreneurs
believe that primary and secondary schools devote enough
time to teaching entrepreneurship. Colleges and universities
fare better, but they still could offer more practical aspects
of entrepreneurship in the curricula. In addition, just 25% of
Afro-entrepreneurs agree that colleges and universities devote
enough time to teaching entrepreneurship.
KEY POINTS OF DISCUSSION
The culture of innovation is lacking in schools. Stakeholders
generally agree that the education system tends to focus
on theoretical education and harnessing skills most useful in
corporate ?rms, failing to offer more practical curricula that
can adequately prepare youth to work in entrepreneurial
enterprises. Among colleges and universities in Sub-Saharan
Africa, only 7% have an entrepreneurship centre dedicated to
entrepreneurial development; 28% offer courses specialising
in entrepreneurship; and 10% offer a course in innovation and
technology.
6
Limited opportunities for hands-on learning and
managing small projects means that students are not afforded
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
a new ?rm, which for many leads to the tendency to look for
jobs in well-established ?rms and corporations. According to
the Monitor Survey, the percentage of Afro-entrepreneurs who
believe they have the skills to manage new ?rms is quite low:
9% in South Africa; 14% in Ghana and Nigeria; 19% in Ethiopia;
22% in Tanzania; and 23% in Kenya.
Formal education, including attitudes and behaviours, plays
a role in entrepreneurship. The lack of a basic business culture
in most small-scale enterprises—evidenced by traits such
as procrastination, poor client management and missing
deadlines—may be attributed to the fact that few formally
educated employees have worked at entrepreneurial ventures.
Such employee challenges in most small businesses reduce
their ability to retain long-term clients or acquire new ones.
Africa’s Limited Skills and Talent For Entrepreneurial Ventures
FIGURE 5
Respondents who agree that:
‘Schools devote enough time to
teaching entrepreneurship’
Primary &
Secondary
University &
College
Respondents who agree
that: ‘Many people can
manage new ?rms’
78%
36%
64%
8%
17%
14%
25%
17%
13%
Agree
Neither
Agree/
Disagree
Disagree
Students are not afforded clear paths
for cultivating competencies related
to practical thinking and creative
problem-solving—skills needed
to successfully build and manage
a business.
09
ENTREPRENEURSHIP ASSETS
To grow their business, entrepreneurs should be willing to train
and build the workforce available to them.
Talent management systems need to attract, engage and
retain employees. Providing the right employee value
proposition is an opportunity to attract talent to build staff
and maintain the appropriate composition of skills required for
a company to grow. A company’s ‘culture’ should incentivise
and excite staff to be innovative. It should also challenge
and reward creative abilities and the capacity to exercise
independent judgment. A culture that promotes employee
autonomy and ?exibility will be more likely to attract young
talent. Entrepreneurs should promote the opportunities
available to would-be employees for cross-functional work
within their business. This can often be an alternative to
attracting young talent because such cross-functional work
provides workers with a better understanding of the
operations of small enterprises.
Many entrepreneurs do not see how the type of formal
education provided in schools and the values and attitudes
promoted at home relate to the skills they need for developing
their businesses. Through efforts such as conducting
continuous assessments and providing a strong ethical culture
and system of values, at-home upbringing and learning
institutions can help lay an important foundation for
entrepreneurial behaviour.
Developing an entrepreneurial skills base requires a shift
in culture. One of the biggest limitations to developing an
entrepreneurial skills base is the lack of support from society
and formal institutions. Few avenues of support are available
to help people identify their passion, as well as build the
con?dence required to convert that passion into a business.
Society fails to encourage students to recognise or take
advantage of their inherent entrepreneurial potential, as society
often values and respects professionals over entrepreneurs.
Parents and guardians pressure their wards into studying more
professional courses rather than entrepreneurial or creative
ones, sometimes even tagging them as ‘crazy’ when students
make the decision to work in start-up companies or develop
their own businesses.
Entrepreneurial ventures need professional skills. Participants
in the workshops in Accra expressed that it is dif?cult for
business owners to recognise when the operations of their
business need to be supported by a professional with a
different set of skills and expertise. Often, entrepreneurs take
on too much when trying to sustain their business, which can
eventually stunt growth. For entrepreneurial organisations
to grow, it is important to identify the professional skills needed
for a particular task or stage of growth, acknowledge existing
strengths and gaps on the team and then source the missing
skills accordingly.
Trust must also be established between businesses and service
providers. Among entrepreneurs, a signi?cant fear exists that,
whilst engaging advisory services, the service providers may
steal their business ideas.
Financial remuneration is not the only tool available for
entrepreneurs to attract talent. The notion that remuneration
always has to be monetary, and therefore that small enterprises
cannot attract the most talented staff, should be revisited.
It is true that in most cases entrepreneurs cannot compete
with the more structured companies for certain types of skilled
talent; however, the skills that small ventures require may
actually not be available in the regular job market. Providing
opportunities for problem solving in the work environment,
which offers increased individual responsibility, is an effective
means of attracting talented staff. Entrepreneurs have the
option of investing in training in management skills for their
existing staff if they cannot afford to source outside skills.
Parents and guardians pressure their
wards into studying more professional
courses rather than entrepreneurial
or creative ones, sometimes even
tagging them as ‘crazy’ when
students make the decision to work
in start-up companies or develop
their own businesses.
5
Dr. Jean Kobongo, ‘The Status of Entrepreneurship Education in Colleges and
Universities in Sub-Saharan Africa,’ Millersville University, 2010.
6
Ibid.
10
• Establish communications and career counselling
programmes that encourage and guide young people
towards the creation of entrepreneurial ventures.
Identifying one’s passion is an important step in the path
of entrepreneurship; developing the corresponding skill
set and/or obtaining experience that can translate one’s
passion into a business that adds value to society requires
access to the right support structures.
Schools should assist students by providing guidance and
counselling services to help them discern between various
career options. By developing training programmes/modules
for entrepreneurs on how to communicate the attraction
of greater individual responsibility (as compared to in
the corporate world) within entrepreneurial ventures,
entrepreneurs will become better prepared to articulate
the opportunities for professional advancement that their
companies offer.
• Institute secondment, mentorship and networking
programmes where seasoned executives (previously
or currently employed) support SMEs for limited periods
by working alongside and training SME staff on key projects.
By creating opportunities for practical, on-the-job training
and skills development, SME working staff can learn hands-
on, side-by-side with experienced managers.
• Offer incentives (e.g., subsidies, tax advantages) to
entrepreneurs who offer strong employee value
propositions to prospective professional staff, such as
stock option programmes or specialised training. This will
make it easier for entrepreneurs to be creative in their
compensation offering so they have better chances of
attracting and retaining talent.
RECOMMENDATIONS FOR SKILLS
AND TALENT
• Include entrepreneurial and vocational training in the
education system in Africa so that learners are exposed
to entrepreneurship from a young age. This will help future
workers ascertain the possibilities of having their own
businesses, the ?nancial rewards attached to ownership
and the challenges inherent to the journey.
Create and deploy an entrepreneurship curriculum for
primary and secondary schools with practical apprenticeship-
like programmes that supplement theoretical learning,
collaborations between local schools and local stakeholders
to provide internships, and training as a means to develop
the talent needed to support small enterprises. This will
expose young learners to the full reality of entrepreneurship
—the idea, the journey, the challenges and the successes,
both theoretically and practically. In Singapore, for example,
students receive mandatory entrepreneurship education
for one year within the primary school system. In Mexico,
students are required to learn basic economics and business
skills; beginning with basic classes at the pre-high school
level, students progress to creating and managing their own
business by the age of 18. The United States and many other
countries exhibit numerous examples where primary and
secondary educational curricula emphasises group-learning
and hands-on projects.
Best practises such as these can be applied to increase
entrepreneurial education in formal institutions in Africa.
The school system in Mauritius provides entrepreneurship
learning at the primary level. Real-world experiences will
also aid young people in developing critical skills such as
integrity, resilience to change and having the wherewithal
and constitution to do the right thing.
• Leverage Internet-based solutions that offer training in
business skills and entrepreneurial management to provide
assistance to entrepreneurs that is scalable and available at
relatively low costs. For instance, the International Finance
Corporation has developed an SME Toolkit—an online
collection of training materials, translated into 15 languages—
for SME managers in developing countries.
SKILLS AND TALENT
11
There are, however, some perceived successes in Kenya, where
the integration of mobile technology into everyday life has
improved the way business is conducted and payments are
processed. Fifty-three percent of Kenyan respondents believe
that physical infrastructure in the country provides suf?cient
support for new and growing ?rms.
RECOMMENDATIONS FOR
INFRASTRUCTURE
• Deploy and upgrade infrastructure ?rst in selected
productive areas where there are substantial business
activity and strategically important local industries.
Infrastructure deployment requires signi?cant capital
investments that should be made where the prospects
of good economic activity and returns exist.
• Favour public-private partnerships in the execution of
infrastructure projects. Public agencies in Africa are often
affected by capacity and resource constraints, and both
the culture of urgency and types of skills that tend to reside
in the private sector play a pivotal role in the completion
of infrastructure projects.
ENTREPRENEURSHIP ASSETS
INFRASTRUCTURE
The poor state of infrastructure across Sub-Saharan Africa
is a signi?cant obstacle to the growth of entrepreneurial
enterprises; it severely affects entrepreneurs’ costs,
market access and ef?ciencies.
Respondents to the Monitor Survey pinpoint the lack of
access to constant electrical power as the biggest challenge
in terms of infrastructure. Unreliable electricity supply, poor-
quality and limited breadth of road and rail networks, and poor
communications infrastructure are all highlighted as having a
signi?cant impact on the cost of doing business. In?uenced by
additional costs, such as purchasing generators or grading rural
roads, 52% of respondents in Tanzania believe that new and
growing ?rms cannot afford the costs of physical infrastructure.
In the words of Africa’s entrepreneurs and as illustrated in
Figure 6:
• Infrastructure is inadequate and unreliable: Only 38%
of Afro-entrepreneurs agree that infrastructure provides
suf?cient support for new and growing ?rms.
• Infrastructure is costly and inef?cient: Only 23% of Afro-
entrepreneurs believe that new and growing ?rms could
afford the costs of using infrastructure.
• Electricity supply is inadequate and unreliable: The issue
is most prominent in Nigeria, where only 27% of respondents
believe that the physical infrastructure provides suf?cient
support for new and growing ?rms.
The cost of dealing with unreliable infrastructure is prohibitive.
In the case of electricity, with the exception of South Africa,
all countries surveyed face electricity shortages, and most
entrepreneurs must purchase diesel generators to supplement
grid electricity. This increases the costs of doing business. While
supply is less of an issue in South Africa, recent announcements
regarding electricity tariff increases over the next few years
will see the cost of electricity becoming a more signi?cant
proportion of a small business’ costs.
The Poor State of Infrastructure Across Sub-Saharan Africa
FIGURE 6
Responses to the statement:
‘Infrastructure provides
suf?cient support for new
and growing ?rms?’
Responses to the statement:
‘New and growing ?rms can
afford the costs of using
infrastructure?’
Agree
38%
Agree
23%
Disagree
48%
Disagree
58%
Neither
14%
Neither
19%
*Global Competitiveness Report 2010-11, World Economic Forum, 2011
Infrastructure Composite
Indicator
Quality of Electricity Supply:
GCR* Composite Averages
Peer Avg. SSA Avg.
Scale
1–5
2.44
2.90
+19%
Peer Avg. SSA Avg.
Scale
1–7
2.76
5.07
+84%
There are, however, some perceived
successes in Kenya, where the
integration of mobile technology
into everyday life has improved the
way business is conducted and
payments are processed.
12
available, the Monitor Survey indicates that less than one-third
of respondents ?nd the value of the services delivered worth the
cost, particularly relating to services received from banks (22%).
KEY POINTS OF DISCUSSION
Access to knowledge and tools required to formalise and
sustain businesses are scarce. The majority of entrepreneurs
and their employees do not possess the necessary expertise
or the professional networks to address the breadth of the
functional needs of their business. Moreover, these services are
not easily found in Africa, especially as they pertain to services
required to raising ?nancial capital.
Obtaining funding is a process that requires a business to
conduct a rigorous analysis of its business model, the market
potential and the changing external environment. Entrepreneurs
without access to information, or without access to the required
expertise, are unable to present convincing applications for
funding. For necessity-driven entrepreneurs in particular,
the situation is quite dire, as the services that are available are
targeted at more-established entrepreneurs as opposed
to start-ups.
BUSINESS SUPPORT
Business advisory services, government programmes and incubators
Small enterprises require entrepreneurial support services to formalise
and build their businesses, especially in areas such as readiness for
funding, competition research and ?nancial management. This section
assesses the availability of support services in Africa and examines
the impact they have on business. We also suggest areas that
need improvement.
Business support services are classi?ed as:
1 – Business advisory services
2 – Government programmes
3 – Incubators
O
V
E
R
V
I
E
W
The provision of widely available, high-quality business
support services has been lacking in Africa. Those services
that do exist are primarily located in urban centres—out of
reach for thousands of local entrepreneurs.
In addition, a number of other visible and invisible barriers such
as cost, gender discrimination and poor quality assistance have
prevented these centres from providing effective support to
African entrepreneurs.
Access to professional and affordable business advisory
services such as lawyers, accountants and consultants remains
elusive for early-stage businesses. Shown in Figure 7, only
30% of entrepreneurs in Kenya and less than 25% in the other
?ve Monitor-Survey countries believe that business support
services are suf?cient to meet the needs of new ?rms.
Furthermore, less than 20% of entrepreneurs in ?ve of the six
African countries believe that business support services are
available throughout the entire country. Where services are
BUSINESS ADVISORY
SERVICES
13
BUSINESS SUPPORT
The supply, access and affordability of business advisory
services prohibit their uptake. Service providers such as
accountants, lawyers and third-party consultants are mostly
clustered around key urban centres and are not easily
accessible to entrepreneurs who have businesses in rural or
less af?uent areas. Although banks are found to be the most
available source of advisory services, due to the low perception
of value, their ability to support businesses is rarely exploited.
When the scarcity of services is coupled with high costs, the
majority of entrepreneurs are unable to obtain the counsel
and advice they need.
Lawyers and Accountants Banks (Advisory Units) Third Parties*
Insuf?cient Business Advisory Services
FIGURE 7
Respondents who agree that: ‘Business support services
are suf?cient to meet the needs of new ?rms’
Percentage of Sub-Saharan Africa respondents agreeing that
the following provide high-quality advisory services:
Respondents who agree that: ‘Business support services
are uniformly available throughout the country’
41% 21% 30%
*Third parties include subcontractors, suppliers and consultants.
Ghana Ethiopia Nigeria Kenya S. Africa Tanzania
24%
30%
23%
24%
23%
20%
Ghana Ethiopia Nigeria Kenya S. Africa Tanzania
24%
5%
12%
17%
14%
13%
Entrepreneurs without access to
information, or without access to the
required expertise, cannot present
convincing applications for funding.
14
GOVERNMENT
PROGRAMMES INCUBATORS
As a general observation, large government-assistance
programmes for SMEs have not worked for two reasons.
First, mass scale, ‘factory-like’ business assistance doesn’t
work because in business, one size does not ?t all. A business’
industry, stage of development and management expertise
present too many variables for a template approach to be
effective. Second, government personnel lack the motivation
and skills required to assist entrepreneurs. Entrepreneurs are
best assisted either by other entrepreneurs or by established
functional or industry experts who possess appropriate and
relevant expertise.
African governments have increased support for entrepreneurs
by creating several initiatives to encourage small enterprises.
However, the results of these initiatives have been limited.
In the Monitor Survey, a composite of survey questions related
to the supply, accessibility and coordination of government
programmes shows that Afro-entrepreneurs rate the ef?cacy
of government programmes lower than the peer average.
KEY POINTS OF DISCUSSION
Government programmes could be more effective.
Governments have made efforts to support entrepreneurs,
notably through the following programmes:
• Small and Medium Enterprise Project, Ghana
• Youth Enterprise Development Fund (YEDF), Kenya
• Federal Government Youth Entrepreneurship Programme
(YOUWIN), Nigeria
• Small Enterprise Development Agency, South Africa
• Small Industries Development Organisation (SIDO), Tanzania
Nevertheless, entrepreneurs as a whole do not believe that
the programmes are having the intended impact. Contributing
factors may include some invisible barriers, including gender
and ethnicity, that affect the accessibility of support
programmes to small-enterprise owners. A general sense
prevails that ‘you need to know someone in government to get
the support.’ Additionally, government does not understand
business well, so even when entrepreneurs can access these
programmes, they are not always particularly useful.
Additionally, barriers in legislation and policies make it dif?cult
for African entrepreneurs to formalise their businesses, seek
funding or enter new markets.
Incubators and accelerators can offer entrepreneurs vital
support during the start-up phase. To be effective, it is
widely held that incubators must focus on a limited
number of companies to provide the high-touch support
that entrepreneurs need to launch, ?nd and serve new
customers and scale.
The concept of ‘mass-incubation’ is, therefore, ill suited for
such requirements, although it has unfortunately been widely
adopted in many African and non-African countries. As
highlighted in Figure 8, the Monitor Survey found that most
Afro-entrepreneurs believe that an insuf?cient number of
incubators exists to support the launch of new ?rms in their
respective countries: 92% of those in Ghana; 90% in South
Africa; 87% in Tanzania; 78% in Nigeria; 77% in Ethiopia; and
76% in Kenya.
KEY POINTS OF DISCUSSION
Incubators and accelerators, though in their infancy in Africa,
have demonstrated some success. Incubators and accelerators
are valuable to entrepreneurs by providing them with the tools
required to formalise and grow their businesses. Particularly
given the aforementioned lack of entrepreneurship training in
schools, incubators play a vital role in addressing the gap
in entrepreneurial capability. Services range from physical
Business Incubation Remains in Its Infancy
FIGURE 8
Ghana Ethiopia Nigeria Kenya S. Africa Tanzania
23%
24%
8%
10%
22%
13%
Respondents who agree that: ‘There are suf?cient numbers
of incubators to support the launch of new ?rms’
Incubators and accelerators are
valuable to entrepreneurs by providing
them with the tools required to
formalise and grow their businesses.
15
BUSINESS SUPPORT
• Create networks of support services where local business
professionals are identi?ed, documented, mobilised and
incentivised (via personal tax breaks, for example) to
provide mentoring and/or technical support to local
entrepreneurs. As an example, the Endeavor VentureCorps
is a network of 1,000+ individuals globally who provide
mentoring to entrepreneurs. Accountants, lawyers and tax
specialists could assist entrepreneurs on their own time and
earn tax credits and/or cash while providing crucial support.
• Establish one-stop-shop set-up and regulatory compliance
agencies for SMEs (as has been done in Russia).
– Create, if needed, dedicated access for women and
ostracised minorities.
– Create, if appropriate, dedicated access for diaspora
nationals wanting to invest back home, with branches
at relevant embassies.
• Provide incentives to corporate entities and to individuals
working at those corporate entities for the set-up of
employee-created businesses and/or division spin-outs.
For example, the Enterprise Development Programme in
South Africa awards companies with more than ZAR 5
million in turnover that spend 3% of pro?ts for enterprise
development (e.g., training, support, equity and debt) with
15 points in the Black Economic Empowerment scorecard.
This, in turn, gives them preferential access to government
business opportunities.
• Develop networking programmes/platforms for young
entrepreneurs; provide spaces where less experienced
entrepreneurs learn from experienced business owners;
and leverage large anchor ?rms, as well as university and
business school networks, to provide entrepreneurs with
physical access to groups of like-minded individuals and
enterprises (e.g., technology-driven, clean energy and
manufacturing) where incubation happens naturally.
An example of this is the iHub, an innovation hub for the
technology community in Nairobi.
Create entrepreneurship hubs focused on the commerciali-
sation of locally-developed intellectual property—wherever
appropriate and feasible—because tech entrepreneurs
often lack the business skills to transform innovation into
sustainable businesses. Examples of these types of hubs
include Bangalore in India and the Silicon Cape Initiative in
South Africa.
incubation (setting up of?ces and structures required to
function) to providing networks of advisory-service providers
and funding.
The prevalence of business incubators for start-up and early-
stage businesses is relatively low in Africa, as the idea of support
organisations for businesses is a new—but growing—trend.
Cases of successfully incubated businesses do exist, however;
and these emerging results are encouraging for the whole
concept of incubators and accelerators.
Two examples—one for-pro?t business and one government
programme—demonstrate the potential of incubators. Privately-
owned and managed NextZon in Lagos provides a range of
services including strategy and planning; of?ce facilities; and
human resource, legal and accounting services. The Incubation
Support Programme of the South African Department of Trade
and Industry supports incubators via a cost-sharing basis (40:60)
between government and the private sector. Funding can be
used to provide business development services, infrastructure
such as building and furniture, ICT, feasibility studies, product
or service development, and operational costs.
RECOMMENDATIONS FOR
BUSINESS SUPPORT
• Provide generous incentives and subsidies for private-
sector players offering business development services
to set up business support services companies. Make
vouchers and discounts available for SMEs to access
speci?c professional advisory services (such as legal,
accounting and human resources services).
• Allow private and government-run business support
organisations to leverage widespread government of?ces
(e.g., post of?ces and city halls) for the provision of business
services to reduce the capital costs of providing support.
Document and disseminate the various sources of business
support services available in a jurisdiction at both the
national and local levels. Examples include information
portals in both electronic and printed formats.
Cases of successfully incubated
businesses do exist, however;
and these emerging results are
encouraging for the whole concept
of incubators and accelerators.
16
KEY POINTS OF DISCUSSION
The complexity of legislation in South Africa, coupled with
the harsh penalties imposed for non-compliance, is a
signi?cantly greater constraint for new entrepreneurial
ventures than for those in peer countries. The requirements
of the Consumer Protection Act, Labour Relations Act and
National Credit Act 73 are onerous and time-consuming.
Entrepreneurs who fail to comply are faced with harsh
penalties. The penalty for failing to adhere to the procedures
for dismissing employees as set out in the Labour Relations
Act, for example, could be as high as 12 to 24 months of wages
to the dismissed employee in question. The complexity of
regulations places an unfair burden on entrepreneurs vis-à-vis
large, well-established ?rms that are better positioned to
absorb the costs of compliance. The Strategic Business
Partnership has estimated that the average cost of compliance
for small businesses is approximately 8.3% of turnover
compared to only 0.2% for big businesses.
7
Positive views regarding legislation in other African countries
are, in part, driven by an ability to curtail poorly-enforced
regulations. The pervasive informality on the continent allows
entrepreneurs to operate ‘below the radar’ and outside the
con?nes of formal laws. While this leaves these businesses
POLICY ACCELERATORS
Legislation and administrative burdens
Laws governing business competition were generally
found to favour large, well-established ?rms; although
markets remain relatively open given the infancy of many
industries on the continent.
South African respondents, in particular, identi?ed labour law
as a barrier. Fifty-four percent of South African respondents
express that government labour regulations actively discourage
the hiring of employees, as shown in Figure 9. By contrast, only
33% of respondents across Sub-Saharan Africa share these views.
LEGISLATION
Labour Laws
FIGURE 9
Respondents who agree that: ‘Government labour
regulations actively discourage the hiring of employees’
South Africa Sub-Saharan Africa Avg.
54%
33%
While legislation is not perceived as a major hindrance to
entrepreneurs in Sub-Saharan Africa, administrative burdens still
weigh heavily across the continent.
More and more governments are recognising that entrepreneurship
can be a huge contributor to economic growth and are beginning
to support efforts and initiatives that encourage innovation and
enterprise-creation.
O
V
E
R
V
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W
17
Despite recent improvements, administrative burdens
still weigh heavily across the continent.
Out of 183 ranked countries, in terms of general ease of doing
business, Kenya (109), Nigeria (133) and Tanzania (127) all rank
in the bottom half. South Africa (35) ranks in the top quintile.
Similarly, all countries except South Africa rank in the
bottom half for starting a business. In Ghana and Tanzania,
entrepreneurs indicate particularly acute challenges when
dealing with construction permits. In contrast, respondents in
Ghana indicate relative ease in the process of registering
a business.
9
KEY POINTS OF DISCUSSION
While Afro-entrepreneurs concede that reforms that have
been put in place to improve the ease of doing business
have been helpful, entrepreneurs continue to face a number
of administrative challenges. Particularly in East Africa,
entrepreneurs repeatedly remark that the business environment
has signi?cantly improved over the past 10 to 20 years due to
the implementation of various government initiatives aimed at
reducing red tape. These include efforts to increase the ease
with which new businesses can obtain licenses and permits,
trade across borders and enter new markets. Such efforts have
not only helped to improve entrepreneurs’ experiences but
have also opened up new market opportunities. Nonetheless,
there is room for additional intervention, and as previously
discussed, the majority of entrepreneurs continue to operate in
the informal sector where they are not subject to bureaucracy.
RECOMMENDATIONS FOR POLICY
ACCELERATORS
• Provide targeted incentives to entrepreneurs for the
development of key sectors that are currently underserved.
• Develop more nuanced legislation that differentiates
between big business and SME segments. Conduct impact
assessments prior to enforcing new legislation to determine
the potential consequences for entrepreneurs and proactively
enact measures to minimise negative outcomes.
Reduce the prohibitive costs, time and bureaucracy
associated with regulatory compliance to discourage the
widespread informality of businesses. Governments should
continue to implement reforms that can further decrease
red tape and create a more enabling environment for new
businesses. For instance, in Kenya, recent improvements to
business registration processes have signi?cantly decreased
administrative burdens for new businesses. Additionally, the
Kenyan Anti-Corruption Commission has been established
to curb corruption.
10
POLICY ACCELERATORS
economically excluded, with limited access to ?nancial and
consumer markets, 60% of respondents are of the opinion
that to successfully launch a new venture, it was acceptable
to begin by operating in the informal sector. Similarly, 62% of
respondents personally know entrepreneurs who had started
in the informal sector, avoided paying taxes, operated without
certi?ed accounts and informally hired employees. These
points are illustrated in Figure 10.
From the state’s perspective, this informality results in potential
tax revenues being forfeited. However, if moves are made to
formalise industries and processes, policymakers and other
stakeholders may very well be confronted with the challenge
of preparing entrepreneurs to operate more formally while
simultaneously having to reduce potentially detrimental
unintended consequences of signi?cantly higher operating
costs in a more regulated environment.
It is relatively easy for new and growing ?rms to enter new
markets. With the exception of South Africa, most sectors are
not typically dominated by large ?rms; as such, entrepreneurs
are able to pursue market opportunities without being unfairly
blocked by well-established ?rms. In Tanzania, for example, the
economy is still heavily reliant on the agricultural sector, which
employs approximately 80% of the workforce; thus, many
sectors remain largely undeveloped.
Informality in Africa
FIGURE 10
I am aware of entrepreneurs who have
started in the informal sector, avoided
paying taxes, operated without certi?ed
accounts and informally hired employees
To successfully launch a new venture,
it is acceptable to begin by operating
in the informal sector
To successfully launch a new venture,
it is acceptable to informally hire
employees
62%
60%
41%
7
‘Counting the Cost of Red Tape,’ Strategic Business Partnerships for Growth
in Africa.
8
CIA World Factbook, Tanzania Country Summary.
9
World Bank, Ease of Doing Business Index, 2012.
10
Kenya Overview, Trust Law website, 2012.
ADMINISTRATIVE BURDENS
18
MOTIVATIONS AND MINDSET
The Culture of Entrepreneurship in Africa
KEY POINTS OF DISCUSSION
General views on entrepreneurship are improving. While
formal employment is still highly prized, some encouraging
trends are emerging. Opportunity-driven entrepreneurship is
becoming respectable. The Monitor Study found that more
than three-quarters of Kenyan and Ethiopian respondents now
believe that most people consider becoming an entrepreneur
a desirable career choice. As illustrated in Figure 11, the same
holds true for 64% of respondents in Tanzania, 51% in Ghana,
49% in Nigeria and 44% in South Africa.
Maybe even more important, and also shown in Figure 1 1, is
the high number of Afro-entrepreneurs who agree with the
statement, ‘People who successfully start new ?rms have
a higher level of respect than a manager in a corporate:’
78% in Ethiopia, 63% in Kenya, 55% in Tanzania, 55% in Nigeria,
54% in Ghana and 47% in South Africa.
Stereotypical views of business success adversely affect the
culture of entrepreneurship. In Africa, the successful ‘business-
person’ is often celebrated for his or her wealth and lifestyle
as opposed to business acumen and entrepreneurial ?air. As a
The culture of entrepreneurship in Africa is largely de?ned by necessity-
driven entrepreneurship; that is, entrepreneurship as a means of
survival. Entrepreneurship is viewed as a last resort, as opposed to the
pursuit of an opportunity or aspiration; although the Monitor Survey
suggests that the pursuit of entrepreneurship as a career has gained
acceptance and legitimacy in Africa. Despite the fact that most
African societies seem to have bestowed a ‘seal of approval’ on
entrepreneurship, efforts still need to be made to promote high-impact
entrepreneurship based on opportunity rather than necessity.
It was noted that Africans, at this juncture, may not fully appreciate
the ‘entrepreneurial journey.’ Having a romanticised image of the
smart, impetuous, bold and rich entrepreneur who conquers markets
and lives in luxury can be very misleading if it is not coupled with an
awareness of the countless hours of work, disconcerting moments of
payroll uncertainty at month-end, struggles to keep operations going
on razor-thin cash ?ows, and many other challenges that all
entrepreneurs encounter at one time or another.
This section covers the drivers of the culture of entrepreneurship, as
well as the role various institutions can play in fostering a better culture
of entrepreneurship.
O
V
E
R
V
I
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W
19
MOTIVATIONS AND MINDSET
Failure should be an option for success in business. Lack of
knowledge—and the resulting fear—among existing and
aspirant entrepreneurs restricts them from taking calculated
risks to start and stretch their businesses. Entrepreneurs must
be prepared to acknowledge that some of the most thorough
and well-executed plans will not be successful. Entrepreneurs
must be allowed to ‘fail fast, fail often’ and bounce back.
In some cases, investors actively seek individuals who have
failed, learned from their failures and are willing to try again.
The culture of entrepreneurship is also largely de?ned in
the family unit. The litmus test for gauging the view of
entrepreneurship is the ‘dinner table conversation,’ which
discloses prevailing views of one’s closest network on the idea
of entrepreneurship.
Fortunately, attitudes towards failure are becoming more
accepting. Afro-entrepreneurs in the Monitor Study recognise
that failure is part of the entrepreneurship process and that
it is common for failed entrepreneurs to try again by starting
a new business. Rates of agreement with this concept are
68% in Kenya, 67% in South Africa, 63% in Tanzania, 56% in
Ethiopia and 54% in Nigeria.
Governments play a role in fostering a culture of entrepre-
neurship; however, the views as to the extent of that role are
mixed. Opponents of government involvement offer that the
government is ill suited to lead. Government—by its nature—is
not entrepreneurial, and there is a concern that entrepreneurs
could form dependencies on government, thereby sti?ing
creativity and resourcefulness.
Proponents, however, point to models where government
has successfully improved the culture of entrepreneurship.
In South Korea, before the 1997 economic crisis that led to high
levels of unemployment, most people aspired to work for the
government or large organisations. After the crisis, the govern-
ment found innovative ways to encourage entrepreneurship
by implementing creative policies that changed tax laws and
bankruptcy codes. The government also introduced an
‘Entrepreneur of the Month’ programme to raise the pro?le
and stature of entrepreneurs.
RECOMMENDATIONS FOR MOTIVATIONS
AND MINDSET
• Establish programmes and media initiatives that celebrate
entrepreneurs’ successes, honour their journeys and
encourage those who have failed to rise again. For example,
Singapore has established the Phoenix Award, which
speci?cally awards entrepreneurs who have failed and then
gone on to create another start-up.
• Formulate and introduce income-insurance schemes
for selected types of African entrepreneurs.
result, many young people venture into entrepreneurship solely
to attain wealth and emulate such lifestyles, embarking upon
the same lines of business as the successful businesspeople
they are trying to emulate without any knowledge of that
particular industry. This discourages innovation.
This skewed view of success is exacerbated by the fact that
people believe that to be celebrated they must acquire material
possessions and give the impression of success before actually
attaining success. Examples of this include entrepreneurs buying
expensive cars and renting luxurious and expensive of?ce space.
This culture poses many risks to businesses where enterprise
resources are redirected towards consumer expenses.
To combat these stereotypes and offer an alternative model,
the number of awards celebrating entrepreneurship is on the
rise. Examples include the Africa Awards for Entrepreneurship,
All Africa Business Leaders Award, Schwab Foundation for
Social Entrepreneurship and Tanzania Entrepreneur of the Year
Awards. Complementing awards such as these is an increased
number of media outlets focusing on entrepreneurship;
respondents to the Monitor Study acknowledge the media’s
coverage. In response to the statement, ‘The media often
publishes stories about people who successfully start new
?rms,’ 75% of those in Kenya, 63% in Ethiopia, 57% in Nigeria,
52% in South Africa, 46% in Tanzania and 40% in Ghana agree.
Entrepreneurship is a Legitimate Career Choice
FIGURE 11
Ghana Ethiopia Nigeria Kenya S. Africa Tanzania
78%
76%
51%
44%
49%
64%
Respondents who agree that: ‘Most people consider
becoming an entrepreneur a desirable career choice’
Respondents who agree that: ‘People who successfully
start new ?rms have a higher level of respect
than a manager in a corporate’
Ghana Ethiopia Nigeria Kenya S. Africa Tanzania
78%
63%
54%
47%
55% 55%
20
THE WAY FORWARD
Following is a summary of the recommendations for
accelerating entrepreneurship in Africa, which are presented
in the previous pages of this report. These are informed by
the Monitor Survey, discussions held at Omidyar Network’s
Entrepreneurship in Africa Summit and the combined
experiences of the Monitor Group and Omidyar Network
as collaborators in Africa’s entrepreneurial ecosystems.
There is a wide range of possible interventions and
recommendations for supporting entrepreneurship that can
be pursued; thus it is important to prioritise measures and
identify actors who can play a role. Furthermore, the relative
strengths and challenges of a particular environment should
be taken into account when mapping a way forward.
Funder:
Philanthropy
Funder:
Impact
Investor
Civil Society
Organisation
Socially-
minded
Business Government
Academic /
Educational
Institution
E
N
T
R
E
P
R
E
N
E
U
R
S
H
I
P

A
S
S
E
T
S
EARLY-STAGE ENTERPRISE FINANCING
Reduce bureaucracy for early-stage
companies to access government funding
in order to provide ‘softer’ sources of ?nancing
for less-experienced entrepreneurs.
X
Expand or initiate local angel investing
ecosystems to ensure the availability of the
most appropriate type of funding for start-ups.
X X X
Provide tax and other incentives to formal, as
well as informal (e.g., family and friends), angel
investors to make it easier for people who have
extra cash to invest in start-up businesses and
reduce their risk.
X
Provide tax and other incentives for large
clients of early-stage ventures to provide
supplier credit to incentivise and reduce the
risks suppliers take when providing generous
payment terms and/or stock to new ventures.
X X
Educate entrepreneurs about possible sources
of funding outside banking systems.
X X X
Train and assist early-stage entrepreneurs in
the intricacies of capital-raising.
X X X
Train the local ?nancial community to evaluate
investment opportunities on the basis of future
prospects rather than historical cash ?ows.
X X
21
THE WAY FORWARD
Funder:
Philanthropy
Funder:
Impact
Investor
Civil Society
Organisation
Socially-
minded
Business Government
Academic /
Educational
Institution
E
N
T
R
E
P
R
E
N
E
U
R
S
H
I
P

A
S
S
E
T
S
MID-SIZED ENTERPRISE FINANCING
Leverage indirect personal sources of funding,
such as pension funds to fund SMEs, so
that more resources are available to fund
more-established enterprises where the risks
are lower.
X X
Expand or initiate local venture capital investing
ecosystems to ensure that the most appropriate
source of funding is available for companies at
the mid-level stage of development.
X X X
Use local banking systems to disburse donor
or government lines of credit to SMEs to
reduce prohibitive interest rates and collateral
requirements.
X X
Provide incentives and support to mid-sized
SMEs to practise sound ?nancial management
and maintain adequate records, including
audited statements.
X X X X
LATER-STAGE ENTERPRISE FINANCING
Create capital-raising engagement programmes
with leaders of well-established private African
enterprises to inform entrepreneurs about the
bene?ts of private equity funding, as well as the
bene?ts of listing at local stock exchanges.
X
Create continent-wide ‘regional champions’
programmes to facilitate access to capital (both
debt and equity) for independently vetted
pan-African companies that are expanding
across the continent.
X X
22
THE WAY FORWARD
Funder:
Philanthropy
Funder:
Impact
Investor
Civil Society
Organisation
Socially-
minded
Business Government
Academic /
Educational
Institution
E
N
T
R
E
P
R
E
N
E
U
R
S
H
I
P

A
S
S
E
T
S
SKILLS AND TALENT
Include entrepreneurial and vocational
training in the education system in Africa so
that learners are exposed to entrepreneurship
from a young age.
X
Leverage Internet-based solutions that offer
training in business skills and entrepreneurial
management to provide assistance to
entrepreneurs that is scalable and available
at relatively low costs.
X X
Establish communications and career
counselling programmes that encourage and
guide young people towards the creation
of entrepreneurial ventures.
X X
Institute secondment, mentorship and
networking programmes where seasoned
executives (previously or currently employed)
support SMEs for limited periods by working
alongside and training SME staff on
key projects.
X X X
Offer incentives (e.g., subsidies, tax advantages)
to entrepreneurs who offer strong employee
value propositions to prospective professional
staff, such as stock option programmes or
specialised training.
X
INFRASTRUCTURE
Deploy and upgrade infrastructure ?rst in
selected productive areas where there are
substantial business activity and strategically
important local industries.
X
Favour public-private partnerships in the
execution of infrastructure projects.
X
23
THE WAY FORWARD
Funder:
Philanthropy
Funder:
Impact
Investor
Civil Society
Organisation
Socially-
minded
Business Government
Academic /
Educational
Institution
B
U
S
I
N
E
S
S

S
U
P
P
O
R
T
BUSINESS ADVISORY SERVICES, GOVERNMENT PROGRAMMES AND INCUBATORS
Provide generous incentives and subsidies
for private-sector players offering business
development services to set up business
support services companies.
X X X
Allow private and government-run business
support organisations to leverage widespread
government of?ces (e.g., post of?ces and city
halls) for the provision of business services to
reduce the capital costs of providing support.
X
Create networks of support services where
local business professionals are identi?ed,
documented, mobilised and incentivised
(via personal tax breaks, for example) to
provide mentoring and/or technical support
to local entrepreneurs.
X X X X
Establish one-stop-shop set-up and regulatory
compliance agencies for SMEs.
X
Provide incentives to corporate entities and to
individuals working at those corporate entities
for the set-up of employee-created businesses
and/or division spin-outs.
X X
Develop networking programmes/platforms
for young entrepreneurs.
X X
P
O
L
I
C
Y

A
C
C
E
L
E
R
A
T
O
R
S
LEGISLATION AND ADMINISTRATIVE BURDENS
Provide targeted incentives to entrepreneurs
for the development of key sectors that are
currently underserved.
X X
Develop more nuanced legislation that
differentiates between big business and
SME segments.
X
M
O
T
I
V
A
T
I
O
N
S

&

M
I
N
D
S
E
TTHE CULTURE OF ENTREPRENEURSHIP
Establish programmes and media initiatives
that celebrate entrepreneurs’ successes, honour
their journeys and encourage those who have
failed to rise again.
X X X
Formulate and introduce income-insurance
schemes for selected types of African
entrepreneurs.
X X
24
E
T
H
I
O
P
I
A
MACROECONOMIC CONTEXT
Ethiopia has experienced impressive economic growth on
the back of a number of policy successes and favourable
external conditions, creating an air of optimism about
operating businesses in the country.
According to government ?gures, Ethiopia’s economy has
grown at an average annual rate of 11% over the past ?ve years.
Although World Bank and IMF estimates revise this down to
between 7% and 8%, it is generally believed that the country
will be one of the fastest growing economies over the next ?ve
years. Regulatory and institutional reforms, such as improved
business registration requirements and procedures have
helped to strengthen investor con?dence, with investment in
infrastructure reaching USD 6 billion (20% of GDP) in 2010.
1
Entrepreneurs have a role to play in diversifying the Ethiopian
economy away from its current overreliance on agriculture
and creating jobs that improve the livelihoods of Ethiopians.
Although Ethiopia has made some strides in reducing rural
poverty and illiteracy, the government’s current signi?cant
spending is unlikely to be sustainable. Improvements have been
COUNTRY HIGHLIGHTS
•
ETHIOPIA
APPENDIX
largely underpinned by pro-poor public spending in agriculture,
education and health, and road development, which currently
accounts for more than half of government spending.
2
Further,
despite these improvements, there has been rising urban
income inequality and per capita income at USD 1,100 is still
among the lowest in the world. This situation is compounded
by the economy’s reliance on agriculture, which accounts for
41% of GDP and 85% of total employment but is susceptible to
the effects of frequent droughts.
3
It is within this context that
entrepreneurship has a potentially signi?cant role to play in cre-
ating sustainable growth and improving the lives of Ethiopians.
ENTREPRENEURIAL LANDSCAPE
Results from Ethiopia re?ect a positive outlook for conducting
business as the country continues to embark on a cautious
program of economic reform including the privatisation of
state enterprises and rationalisation of government regulation.
4

As Figure A1 shows, Ethiopia outperforms her global and
Sub-Saharan African (SSA) peers along a number of factors
including legislation, administrative burdens and legitimacy
of entrepreneurship. There are however challenges related to
supply of capital, limited networking organisations and more
innovative business support approaches such as incubation.
KEY CHALLENGES
Financing is the most notable constraint, with access
to capital and limited ?nancing options emerging as the
most signi?cant challenges.
As illustrated in Figure A2, the survey found that only 15% of
respondents know of organisations and programs that can
direct them to sources of debt capital. Even when entrepreneurs
know where to ?nd debt, the costs associated with accessing
it are perceived to be prohibitive with 52% of respondents
believing that the cost of debt hinders company formation and
growth. Interviewees highlighted collateral requirements, often
over 100% of the loan value, as the key hurdle. The challenge
with sourcing funds is exacerbated by largely undeveloped
capital markets and limited alternative funding options. Less
than 15% of respondents believe that there is a suf?cient supply
of seed or venture capital for growing high risk ?rms, and
Ethiopia recorded the most negative survey responses with
regard to the use of mergers and buyouts to raise capital.
1
‘Ethiopia’s Imperfect Growth Miracle,’ S. Ali, 2011.
2
Ibid.
3
Ethiopia Summary, CIA World Factbook, 2012.
4
Background Note: Ethiopia, U.S. Department of State, 2012.
25
APPENDIX
The growth of a number of micro-?nancing institutions, as
well as increasing capital in?ows, are a positive sign for new
and growing businesses. Addis Credit and Savings Institution,
established in 2000, provides individual, cooperative and
community-based organisation loans to permanent residents
of Addis Ababa who are willing to engage in credit groups.
On a national level, the Development Bank of Ethiopia has taken
a recent focus on providing medium and long-term loans for
investments projects engaged in agriculture, agro-processing
and manufacturing.
5
The expansion of state-backed funding
for new and growing businesses, be it at the regional or
national level, has the potential to reduce the signi?cant funding
challenges entrepreneurs face. In addition to micro-?nancing,
Ethiopia has begun to attract the attention of foreign investors
who are drawn to the rapid economic growth the country
continues to experience. Signi?cant investments like South
Africa-based Tiger Brands’ acquisition of East Africa Tiger
Brands Industries, as well as Diageo and Heineken’s estimated
USD 400 million acquisitions of state breweries in Ethiopia,
help to shine a spotlight on the country as a viable destination
for foreign and domestic capital. This is already bearing fruit
for entrepreneurs as exhibited by the launch of a USD 100
million Ethiopia fund by the Schulze group in March 2012,
the ?rst private equity fund focused exclusively on Ethiopia.
6
Limited networks of formal and informal business-membership
organisations fail to capture the potential of knowledge-
sharing and promotion of trade. As illustrated in Figure A3,
the majority of Ethiopian respondents believe they do not
have a suf?cient framework for meeting and engaging with
other entrepreneurs. In-depth interviews revealed that while
many entrepreneurs are aware of the Chamber of Commerce,
Most entrepreneurs personally know
of one or more sources of debt capital
Organisations and programs exist to
direct ?rms to sources of debt capital
Most entrepreneurs personally know of
one or more sources of venture capital
Stock markets for growing ?rms to
raise capital are well-functioning
Many organisations exist to facilitate
?rm buy-outs
D
E
B
T
E
Q
U
I
T
Y
34%
15%
26%
16%
16%
Financing Challenges in Ethiopia
5
‘Guide to DBE Loans,’ Development Bank of Ethiopia, 2012.
6
‘Investing in Ethiopia: Frontier Mentality,’ The Economist, 2012.
FIGURE A2
F
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Entrepreneurship Assets Business Assistance
Policy
Accelerators
Motivations
Strong culture of
entrepreneurship
Limited admin burdens and enabling
legislation create a conducive
environment for entrepreneurs
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and incubators, as well as limited
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is a constraint
I
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Peer
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FIGURE A1
Ethiopia’s
6th-Level
Composite
Indicators
vs. Peers
26
few know of regular networking events. Some respondents
revealed that they are gradually beginning to see more sectoral
conferences and networking opportunities; however, the need
to actively drive more platforms where entrepreneurs can meet
and exchange ideas for fostering businesses and developing
business acumen in both urban and rural regions cannot be
emphasised enough.
Business incubation is still in its infancy, and Ethiopia lags its
SSA and global peers in this regard. Seventy-two percent of
respondents believe many people do not have access to incu-
bators to support their efforts to start new ?rms. While there
are some steps in the right direction, including Ice Ethiopia—an
ICT-focused incubation platform founded in Addis Ababa in
2011, this area of business support is largely undeveloped.
KEY STRENGTHS
Ethiopian respondents are particularly upbeat about the
changing business environment as the country continues
to reform from a more planned and centralised socialist
state, to a more open economy that is increasingly
adopting aspects of capitalism and a free market
economic framework.
Figure A4 highlights Ethiopian respondents’ positive perceptions
towards legislation in comparison to SSA and global peers.
The country has sought to incentivise the growth of business
through a number of business incentives that have had an
impact on entrepreneurs, including provisions in public procure-
ment that require large contractors to sub-contract portions
of large government projects to smaller, local businesses.
COUNTRY HIGHLIGHTS
•
ETHIOPIA
In addition, a number of regulatory and administrative
reforms have made it easier to start and operate a business.
Interviewees felt strongly that the business environment has
signi?cantly improved over the last 10 to 20 years, and this view
also came to the fore in the survey results. Survey responses
indicate Ethiopia outperforms its SSA peers with regard to
starting a new business. Respondents are more positive about
the ease with which required permits and licenses can be
obtained than in the benchmarked countries. In addition,
52% of respondents believe government regulations do not
interfere with the successful start of new and growing ?rms,
in comparison to SSA and global average agreement rates of
36%. The IMF and World Bank identi?ed a number of reforms
over the last ?ve years that have made it easier to do business
in Ethiopia including:
7
• Reforming the registry and streamlining procedures to
improve the registration process for new businesses
• Decentralising administrative tasks to sub-cities, merging
procedures conducted at the land registry and municipal
of?ces to ease property transfer procedures
• Reducing signi?cant backlogs and improving case
management and internal training, as well as expanding
the role of the enforcement judge, to reduce delays in court
and thus improve the enforcement of contracts
• Addressing internal inef?ciencies to make trading across
borders easier
• Improving access to credit information by establishing an
online platform for sharing such information and guaranteeing
borrowers’ rights to inspect their personal data
It is evident that these reforms have begun to have a positive
impact on the entrepreneurial environment, and further similar
reforms are encouraged.
Legislation Composite Indicator
Ethiopia SSA Peer Average
2.59 2.75 2.65
Starting and operating a business has become easier
‘ It is clear that registering a business has improved a lot.
The delay is not coming from the registration of?ce.
It comes from ensuring that you meet the requirements.’
— Entrepreneur, Ethiopia
‘Registering for tax is very easy. You can register in a day.’
— Entrepreneur, Ethiopia
‘ There has been a huge improvement. I think it is easier
to register a business now.’
— Entrepreneur, Ethiopia
Responses to
the statement:
‘There are many
informal business
networks to
support new and
growing ?rms’
Disagree
54%
Agree
34%
Neither
Agree/Disagree
12%
7
‘Business Reforms in Ethiopia,’ World Bank, 2012.
FIGURE A3
FIGURE A4
27
APPENDIX
It is not surprising then that the legitimacy of entrepreneurship
is growing, and a culture of entrepreneurship is emerging.
Seventy-four percent of respondents believe that the creation
of new ?rms is an appropriate way to become wealthy, while
78% consider becoming an entrepreneur a desirable career
choice. Interviewees pointed out that this has not always
been the case, and for many years, professional corporate or
government careers were considered the only desirable career
choices. However, it would appear along with the evolving
political and macroeconomic climate, Ethiopians are seeing
more business opportunities and wishing to pursue them.
Figure A5 highlights that 78% of respondents believe that
successfully establishing a business now carries as much
prestige as traditional career choices. The challenge for
government and other stakeholders is to harness this emerging
culture of entrepreneurship and channel it into the development
of sustainable businesses that will drive economic growth,
create jobs and reduce inequalities.
The creation of new ?rms is considered
an appropriate way to become wealthy
Most people consider becoming an
entrepreneur a desirable career choice
People who successfully start new ?rms
have a higher level of status and respect
than a manager of a medium-sized
company
Most people think that individuals who
start new ?rms are competent and
resourceful
74%
78%
78%
78%
Responses to Questions Related to Entrepreneurial Mindsets
FIGURE A5
28
COUNTRY HIGHLIGHTS
•
KENYA
K
E
N
Y
A
MACROECONOMIC CONTEXT
Kenya is the largest economy in East Africa and plays
a role as the hub for trade and ?nance in the region;
however the country faces signi?cant challenges related
to poverty, unemployment and corruption.
In spite of the economic downturn in the rest of the world,
Kenya experienced robust GDP growth in 2011 and is
forecasted to continue to achieve growth rates of at least
5% in 2012 and 2013.
8
This will be driven by thriving sectors
such as tourism, agriculture and manufacturing.
9
Nonetheless,
50% of the population lives below the poverty line and the rate
of unemployment, at 40%, is amongst the highest in the world.
In addition, while the country has stabilised since the political
unrest that followed the 2007 elections, corruption remains a
challenge for enterprises in the Kenyan operating environment.
In recognition of the role that entrepreneurial activity has
to play in addressing some of these economic challenges,
the government has made some efforts to create a more
enabling environment for entrepreneurs. For example, recent
improvements to the business registration processes have
signi?cantly reduced administrative burdens for new businesses.
In addition, the Kenyan Anti-Corruption Commission has been
put in place in order to curb corruption.
10
ENTREPRENEURIAL LANDSCAPE
The results from Kenya indicate that positive perceptions
exist regarding the local entrepreneurial environment: Kenya
outperformed African and even global peers across a number
of composite indicators. Key strengths include an education
system that produces adequate skills for entrepreneurial
ventures, limited administrative burdens and a strong culture
of entrepreneurship. Entrepreneurs in Kenya did however cite
challenges related to the cost of infrastructure and business
support services.
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Policy
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Motivations
Positive attitudes
towards entrepreneurship
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to pursue attractive opportunities
Limited business support
services, particularly
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I
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Peer
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FIGURE A6
Kenya’s
6th-Level
Composite
Indicators
vs. Peers
29
APPENDIX
KEY CHALLENGES
Entrepreneurs ?nd the cost of accessing business
support from banks, lawyers and accountants to be
prohibitive.
As illustrated in Figure A7, while entrepreneurs believe that
they derive signi?cant value from these services, survey
responses indicate that the fees charged are too expensive for
start-ups. Business owners who are located in remote areas
also have to incur additional expenses, including transport and
accommodation, when accessing these services, as they are
typically concentrated in a few urban centres.
A number of public and private sector programmes, such as
the Youth Enterprise Development Fund (YEDF) and the Kenya
Youth Business Trust (KYBT), have been established in response
to these obstacles. The YDEF is a Kenyan government initiative,
which focuses on enterprise development for Kenyan youth
(between 18 to 35 years of age) by providing ?nancial support
and entrepreneurship training.
11
KYBT provides seed capital,
training, business support networks and mentoring to disad-
vantaged youths.
12
Replication of these models, particularly in
remote locations, will go a long way towards reducing the cost
burden for entrepreneurs.
The poor state of infrastructure also has a negative impact
on the operating costs of new businesses. During in-depth
interviews, participants repeatedly cited energy infrastructure
as their greatest infrastructural challenge. Studies conducted
by the World Bank con?rm this: electricity has been identi?ed
as the biggest infrastructure problem facing Kenya and the
country is ranked 162nd out of 185 countries on the ‘Ease of
Getting Electricity’ metric.
13
Institutional reforms have improved
electricity ef?ciency by 1% since the early 2000s, but there
is still room to improve the output and reliability of electricity.
Kenya will need to double current capacity over the next 10
years in order to meet the economy’s needs.
14
Communications
infrastructure is however quite developed: Kenya is ranked 34th
out of 217 countries globally for number of mobile phone users
and 59th for number of internet users.
15
KEY STRENGTHS
Survey respondents were of the opinion that the Kenyan
education and training system provides a good foundation
for entrepreneurs.
Entrepreneurial education in primary and secondary schools
is still in its early stages; however colleges and universities are
perceived to offer a suf?cient amount of teaching on the subject.
In-depth interview participants stressed the importance of
including additional practical skills training in the curriculum
8
Kenya Summary, CIA World Factbook, 2012; Kenya Country Overview,
World Bank, 2012.
9
‘Kenya: Poverty Reduction Strategy Paper Progress - Report,’
International Monetary Fund, 2012.
10
Kenya Overview, Trust Law website, 2012.
11
Youth Enterprise Development Fund website, 2012.
12
Kenya Youth Business Trust website, 2012.
13
Ease of Doing Business, 2013.
14
‘Kenya’s Infrastructure — A Continental Perspective,’ World Bank, 2011.
15
Kenya Communications, CIA World Factbook, 2012.
Business support services are affordable
enough to be used by new ?rms
Business support services deliver value
for money
Business support services are uniformly
available throughout the country
13%
33%
5%
Percentage of Respondents Agreeing with
Questions Related to Business Support
FIGURE A7
‘ Power is pretty unreliable so we have to invest in a standby
generator [...] tariffs are also very high [...]. The roads are not good.
Generally the public goods are not supporting the business.’
— Entrepreneur, Kenya
Responses to
the statement:
‘New and growing
?rms can afford
the costs of using
the physical
infrastructure’
Disagree
58%
Agree
28%
Neither
Agree/Disagree
14%
FIGURE A8
‘Schools Devote Enough Time
to Teaching Entrepreneurship’
Primary &
Secondary
University &
College
‘Many People Can
Manage New Firms’
70%
36%
64%
10%
20%
20%
44%
23%
13%
Agree
Neither
Agree/
Disagree
Disagree
Kenya’s Skills and Talent for Entrepreneurial
Ventures Infrastructure
FIGURE A9
30
COUNTRY HIGHLIGHTS
•
KENYA
in order to develop critical-thinking abilities. Nonetheless,
survey respondents were fairly con?dent that many people
had the skills to respond to market opportunities and ultimately
lead new and growing ?rms. Similarly, entrepreneurs in Kenya
were generally more positive about the preparedness of the
workforce to work in entrepreneurial ventures.
Government reforms to decrease red tape have been effective
in improving the operating environment for new businesses.
In 2008 for example, 110 business licenses were eliminated, and
a further eight simpli?ed, making it easier to register a business
and obtain a building license.
16
Other initiatives to reduce
administrative burdens include the merging of corporate tax
and value-added tax procedures, as well as the digitisation of
the registrar’s records in 2011.
17
As a result, many entrepreneurs
expressed positive sentiments regarding government regula-
tions, as well as the administrative processes involved in starting
and running businesses, as illustrated in Figure A10.
18
There is a strong culture of entrepreneurship in Kenya, and
survey responses suggest that entrepreneurs are accorded a
higher level of status and respect than mid-level and senior
managers in medium-sized companies. Entrepreneurship is
increasingly being viewed as a desirable career option. This is
at least in part due to the role the media has played in pro?ling
successful entrepreneurs.
16
Economy Pro?le: Kenya, World Bank, Ease of Doing Business, 2013.
17
Ibid.
18
A composite of survey questions related to government impact and
government regulations.
Administrative Burdens Composite Indicator
Kenya SSA Peer Average
2.87 3.02 2.87
‘ I think [entrepreneurship] is de?nitely increasing. If I look at my
graduating year at high school, of those living here, about half are
self-employed or have been. [...] The social acceptability of
entrepreneurship is very strong.’
— Entrepreneur, Kenya
FIGURE A10
31
APPENDIX
N
I
G
E
R
I
A
MACROECONOMIC CONTEXT
Nigeria has been marred by poor macroeconomic man-
agement, political instability, corruption and insuf?cient
infrastructure for many years.
The Federal Government continues to face the challenge of di-
versifying the economy away from an overreliance on the capi-
tal intensive oil sector, which provides 95% of foreign exchange
earnings and approximately 80% of budgetary revenues.
19
Like many other resource-dependent African states, despite
a strong real GDP growth rate of 7.2% in 2011, economic
growth has had a limited impact for the majority of citizens,
with an estimated 70% living below the poverty line.
20

Inequality is growing, with the number of Nigerians living in
abject poverty (less than USD 1 per day) increasing from 54% in
2004 to 61% in 2010 and unemployment hovering around 21%.
21

It is within this context of largely undeveloped markets, outside
of traditional economic drivers like the oil sector, as well as high
levels of poverty and unemployment that entrepreneurship
has a potentially signi?cant role to play in shaping Nigeria’s
economic, social and political dispensation.
ENTREPRENEURIAL LANDSCAPE
Results from Nigeria go a long way to con?rm some of the
key challenges and strengths often ascribed to this market.
As Figure A11 shows, Nigeria underperforms her global and
SSA peers along a number of contextual factors; most
notable are ?nancing, infrastructure and government
regulations. Nigeria’s key entrepreneurial strengths are
found in more individualistic factors like the mindset towards
entrepreneurship and a limited fear of failure.
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Entrepreneurship Assets Business Assistance
Policy
Accelerators
Motivations
A strong entrepreneurial
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Networking opportunities
exist for entrepreneurs
Financing is difficult to
access and more complex
options are very limited
Physical infrastructure is
inadequate and unreliable
Regulations are not
applied consistently
I
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2
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Peer
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Nigeria
SSA
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FIGURE A11
Nigeria’s
6th-Level
Composite
Indicators
vs. Peers
32
COUNTRY HIGHLIGHTS
•
NIGERIA
KEY CHALLENGES
Infrastructural challenges are the most notable constraint
highlighted by respondents, with electricity supply
emerging as the most signi?cant challenge.
Fifty-eight percent of respondents believe that the physical
infrastructure available in the country does not provide
suf?cient support for new and growing ?rms, the most negative
result amongst benchmarked countries. Figure A12 highlights
the signi?cant gap between Nigerian infrastructure and the rest
of the continent.
22
The country’s infrastructure scores only
10.1 out of 100 across a composite of infrastructure indicators.
Inconsistent electricity supply across the country has resulted
in backup generators forming a key part of any business’ assets,
albeit at a signi?cant additional operating expense. In fact, only
12% of respondents believe that new and growing ?rms can
afford the costs of using the physical infrastructure available
in the country. These ?ndings highlight the impact of Nigeria’s
well-documented infrastructural challenges on new business
owners. Publications such as the Business Day and Bloomberg
have also indicated that the 4,000MW of power that Nigeria
currently produces is less than a tenth of the power generated
by South Africa,
23
a country with a third of its population.
A positive sign in this space, however, is that the Federal
Government has started to make tangible steps to address
the electricity issue. In March 2012 General Electric Co. and the
Federal Government signed an agreement for the construction
of power plants in line with a broader initiative to privatise and
grow the electric industry. Nigeria has also signed a Memoran-
dum of Understanding with Chinese Sinohydro Corporation
that will see the construction of a 3,050MW hydropower plant
in the eastern Mambila Plateau.
24
Nigerian respondents cited access to ?nance as a key challenge
for starting and growing small businesses. In particular, the
requirements for obtaining capital are prohibitive. As illustrated
in Figure A13, Nigeria marginally lags her SSA peers with regard
to ?nancing,
25
while the gap to global peers is more pronounced.
In-depth interview participants indicated that collateral of up
to 120% is often required for debt ?nancing. As a result, 67%
of respondents believe that bank-lending policies for newer
companies are more challenging than for well-established
?rms. There is also a perceived shortage of equity capital with
only 15% of respondents believing there is a suf?cient supply
of equity capital for starting new ?rms.
The Federal Government has taken a number of monetary,
?scal and industrial policy measures to promote the develop-
ment of small and medium-scale enterprises (SMEs). Some
notable examples include:
26
• Funding industrial estates to reduce overhead costs
• Establishing some specialised ?nancial institutions, including
the Small Scale Industry Credit Scheme (SCICS) and
Nigerian Bank for Commerce and Industry (NBCI) to provide
long-term credit
• Establishing the National Economic Reconstruction Fund
(NERFUND) to provide medium to long-term local and
foreign loans for small and medium scale businesses,
particularly those located in the rural areas
There is, however, more room for growth in the development
of accessible ?nancial options for entrepreneurs.
19
‘Nigeria Economy Picks Up on Non-Oil Sector Growth,’ Reuters, 2012;
Nigeria, CIA World Factbook, 2012.
20
Nigeria Country Summary, CIA World Factbook, 2012.
21
‘Income Disparity, Poverty in Nigeria Depict Defective Macroeconomic
Structure,’ This Day, 2012; Nigeria, CIA World Factbook, 2012.
22
Infrastructure Indicator, Mo Ebrahim Index, 2012: This is a cluster indicator on
a potential range from 0 to 100, with 100 indicating the best possible access
to electricity, road, rail, air transport facilities, as well as telephone and digital
infrastructure.
23
‘Nigerian Power Plant Bidders Named,’ Business Day, 2012.
24
‘Nigeria, China’s Sinohydro Sign Accord For Power Plant,’ Bloomberg, 2012.
25
A composite of survey questions related to supply and access to debt and
equity ?nancing, as well as other ?nancing and exit strategies. Responses are
on a scale from 1 to 5, with 1=strongly disagree and 5=strongly agree.
26
Annual Report, Nigerian Central Bank Report, 2003.
Mo Ibrahim Index – Infrastructure 2010
Nigeria Africa Avg.
10.1
31.4
FIGURE A12
Financing Composite Indicator
Nigeria SSA Peer Average
2.49 2.48 2.69
FIGURE A13
Responses to
the statement:
‘Government
regulations are
frequently applied
to new and
growing ?rms in
a predictable way’
Agree
20%
Neither
Agree/Disagree
37%
Disagree
43%
FIGURE A14
33
APPENDIX
Survey respondents also revealed concerns around the
fairness and consistency of government regulations.
As indicated in Figure A14, only 20% of respondents believe
government regulations are frequently applied to new and
growing ?rms in a predictable way. One of the major challenges
unearthed through in-depth interviews and other discussions
with stakeholders was that state legislation varies and is
often inconsistently enforced. Many entrepreneurs ?nd that
although federal laws are generally clear, ever-evolving state
legislation places signi?cant administrative burdens on new
and growing businesses.
KEY STRENGTHS
The survey not only found supporting evidence of
a strong, entrepreneurial culture in Nigeria, but also
identi?ed a series of speci?c attitudes towards the
legitimacy of entrepreneurship and fear of failure that
explain it.
While many small businesses in Nigeria are survivalist,
entrepreneurship is increasingly viewed as a desirable career
option. A signi?cant proportion of SMEs are borne out of a
context of high unemployment and limited corporate sector
opportunities. This view is shared by the 72% of survey
respondents who believe the establishment of entrepreneurial
ventures in Nigeria is driven primarily by necessity.
Entrepreneurship is however also viewed as a legitimate source
of employment, wealth and job creation for communities.
Society encourages and celebrates successful entrepreneurs,
spurring many young Nigerians to want to start and grow their
own business empires.
The entrepreneurial spirit is strengthened by a limited fear of
failure, as shown in Figure A15. Bankruptcy is not a signi?cant
concern for Nigerians with one interviewee, a former lawyer
at a top law ?rm, indicating that bankruptcy laws are not well
understood and are not a general consideration for most
business owners in the country. It is also encouraging to note
that respondents do not ascribe a negative stigma to people
who have previously failed in business.
“ Although conventional wisdom is to work for a corporate, more
people want to start businesses. It has become a bit of a fad.”
— Entrepreneur, Nigeria
“ Perceptions are not that negative with regard to failed businesses,
at least you tried and can start another business.”
— Entrepreneur, Nigeria
The positive entrepreneurial culture is enhanced by a growing
network of formal and informal business-membership organi-
sations that have provided entrepreneurs with a platform to
share information and engage with new business partners.
Close to half of survey respondents believe there are suf?cient
business-membership organisations, in line with the global peer
group. Informal business networks in particular are prominent
in Nigeria, and 44% of respondents believe there are many
angel investors and entrepreneur networks to support new and
growing ?rms. This was more positive than the global average
of 32%.
These positive perceptions regarding business support
are partly being in?uenced by government programmes.
In more recent years, innovative approaches have been taken
to encourage and support small business development. One
such example is the Youth Enterprise With Innovation in Nigeria
(YouWin!) programme discussed by a number of in-depth
interview participants. This is a joint initiative by the Ministry
of Finance, the Ministry of Communication Technology, the
Ministry of Youth Development and the Ministry of Women
Affairs and Social Development. Through an annual business
plan competition, equity grants and training support are
distributed to new businesses. More initiatives like this will not
only provide much needed business support but also continue
to raise the pro?le of entrepreneurship.
Responses to
the statement:
‘It is common for
people who have
failed in business
to try again’
Disagree
19%
Agree
54%
Neither
Agree/Disagree
27%
FIGURE A15
Respondents who agree that: ‘There are many informal
business networks to support new and growing ?rms’
Nigeria SSA Peer Average
31%
44%
32%
FIGURE A16
34
COUNTRY HIGHLIGHTS
•
TANZANIA
T
A
N
Z
A
N
I
A
MACROECONOMIC CONTEXT
Tanzania’s small private sector cannot currently provide
the ?nancial stimulus needed to improve ailing infrastruc-
ture or absorb the large number of unemployed.
Despite strong gold production and a growing tourism sector,
Tanzania’s economy is still heavily reliant on agriculture, which
provides 85% of exports and employs approximately 80% of
the workforce. Although the National Strategy for Growth
and Reduction of Poverty (NSG&RP, popularly known by the
Ki-Swahili acronym MKUKUTA) projected unemployment
would fall to 7% by 2010, the speci?c programmes under this
strategy have failed to deliver the desired results. Unemployment
estimates remain at approximately 11% despite average GDP
growth of 7% between 2000 and 2008 and growth of 6% in
2011.
27
In addition, an overreliance on World Bank, IMF and bi-
lateral donor funds gives further credence to the need to foster
entrepreneurship as an avenue towards greater self-reliance.
ENTREPRENEURIAL LANDSCAPE
Tanzania generally tracked the performance of its SSA peers as
shown in Figure A17. Key challenges within the entrepreneurial
landscape include prohibitive requirements to access capital,
insuf?cient and often unreliable physical infrastructure and
taxes that are perceived to be excessive. Encouragingly, the
majority of respondents believe a largely under-developed
formal sector enables small businesses to pursue new
opportunities without being blocked by large, established ?rms.
There is also a strong belief that successful steps have been
taken to amend costs and processes involved in starting a
business. These measures include decentralising business
registration by creating a business activities registration system
and business registration centres in local authorities, as well as
eliminating the requirement for inspections by health, town and
land of?cers as a prerequisite for a business license.
28
F
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M
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Entrepreneurship Assets Business Assistance
Policy
Accelerators
Motivations
Although comparable to
African peers, infrastructure
is insufficient and unreliable
Income tax has a
disproportionately
negative impact
Access to capital is
limited, with prohibitive
requirements
Relative market openness
and low administrative costs
provide many opportunities
I
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FIGURE A17
Tanzania’s
6th-Level
Composite
Indicators
vs. Peers
35
APPENDIX
KEY CHALLENGES
Insuf?cient and unreliable physical infrastructure
features prominently as a hindrance to the successful
establishment and growth of business ventures.
Unreliable electricity supply, poor quality and limited breadth of
road and rail networks, and poor communications infrastructure
are highlighted as having a signi?cant impact on the cost of
doing business. In?uenced by additional costs such as purchas-
ing generators or grading rural roads, 52% of respondents
believe new and growing ?rms cannot afford the costs of
physical infrastructure. Figure A18 illustrates two sides to this
issue: ?rstly, the cost of using Tanzania’s physical infrastructure
can be prohibitive, and secondly, the reliability and security
of electricity supply signi?cantly lags the global peer group.
The World Bank estimates, for example, that the cost of obtain-
ing electricity is 1,040% of income per capita putting it out of
reach for many individuals.
29
Infrastructure development is a key area of public policy
given the signi?cant effect it has on broader economic devel-
opment. As such infrastructure investment was emphasised in
the 2011/12 government budget with an 85% increase in budget
allocation from the previous year.
30
In addition, FDI to exploit
large natural gas deposits should also help to alleviate speci?c
challenges around the provision and accessibility of electricity.
It is worth noting, however, that government’s ability to fully
realise its investments plans is constrained by a signi?cant
reliance on loans and grants from foreign entities like the
European Union and the World Bank who, along with other
General Budget Support (GBS) partners, contributed 29%
of the 2011/12 budget. Thus, the political reform required by
many of these donors is deeply intertwined with Tanzania’s
development prospects.
31
Respondents in Tanzania perceive income taxes to be
prohibitively high. An overwhelming 68% of respondents
believe the level of taxes discourages people from starting
new ?rms, compared to an SSA average of 46%. In addition,
52% believe the business tax policy interferes with the ability to
grow ?rms successfully. This negative attitude towards income
taxes appears to re?ect a societal view towards paying taxes as
opposed to actual taxes being exorbitantly high. Tanzania’s
corporate tax rate of 30% and progressive tax policy for
non-corporate businesses are in line with African peers.
For example, Figure A19 highlights that Nigeria has the same
corporate tax rates, but respondents were far less negative
about the impact of taxes on starting businesses. Nonetheless,
tax incentives have a potentially signi?cant role to play in
further encouraging a culture of entrepreneurship.
Access to capital was highlighted as a key stumbling block for
Tanzanian entrepreneurs. Although many businesses are aware
of potential sources of funding, the costs and requirements for
accessing funding are often found to be prohibitive, as shown
in Figure A20. Newer ?rms in particular lament an insuf?cient
supply of capital, with only 26% of survey respondents believing
that there is a suf?cient supply of debt capital. In addition to
collateral of over 130% being required by ?nanciers, the need
to furnish title deeds is a practical hurdle for obtaining loans.
One interviewee estimated that fewer than 20% of properties
in Dar es Salaam are actually registered. As a result, many
potential entrepreneurs are prevented from accessing secured
debt ?nancing from large ?nancial institutions. Growing ?rms
also face challenges accessing capital, with 56% of respondents
believing there is an insuf?cient supply of equity capital. Finan-
ciers and other support organisations, for their part, highlight
that many entrepreneurs need to develop more sound business
ideas and further analyse potential markets for their products
or services. It is dif?cult to ?nance many of these ventures as
they have not been developed beyond an initial idea.
27
‘Tanzania: Unemployment Rate Drops by 1 Percent in Five Years,’
Business Times, 2011; Tanzania, CIA World Factbook, 2012.
28
Business Reforms in Tanzania, IFC and World Bank, 2012.
29
Doing Business Report, IFC and World Bank, 2012.
30
Tanzania Infrastructure Report, Business Monitor International, 2012.
31
Ibid.
‘New and growing ?rms can
afford the costs of using
infrastructure’
Quality of Electricity Supply:
GCR Compostie Averages
Tanzanian Physical Infrastructure
Tanzania SSA Peer
Average
2.88
1.90
4.66
Agree
27%
21%
Neither Agree/Disagree
Disagree
52%
FIGURE A18
Nigeria
Ethiopia
Ghana
South Africa
Kenya
Tanzania
30
25
28
30
30
30
32
40
44
53
68
37
Tax Rates vs. Respondents Who Believe ‘The Level of Taxes
Discourages People From Starting New Firms’
Tax Rates (%)
% Agreeing
FIGURE A19
36
COUNTRY HIGHLIGHTS
•
TANZANIA
Some efforts have been taken by the private and public sectors
to address the need for micro-?nancing. One notable example
is the NMB Jahudi loan scheme, an SME loan scheme through
Tanzania’s largest bank to members of partner organisations
from the public sector, such as the Business Development
Gateway (BDG), the Small Industries Development Organisa-
tion and Enablis Tanzania. Through this scheme, partners
provide guarantees to allow their members to access loans
of between TZS 5 million and TZS 500 million (USD 3,100 to
USD 310,000).
32
These small business owners have access to
guarantee schemes provided by partner organisations, as well
as some business skills training.
33
Further innovative products
from both the public and private sectors are required to
address the ?nancing challenge.
KEY STRENGTHS
Tanzania’s undeveloped formal sector enables small
businesses to pursue opportunities without being blocked
by larger ?rms as illustrated in Figure A21.
The economy is still heavily reliant on the agricultural sector,
which employs approximately 80% of the workforce; thus,
many sectors remain largely undeveloped.
Government has taken some steps to increase market open-
ness, including simplifying the process of trading across
borders through the implementation of a Pre-Arrival
Declaration (PAD) system and electronic submission of
customs declarations. Moves like this are helping to open up
further market opportunities for Tanzanian businesses.
34
The majority of respondents believe that costs and processes
involved in registering a business have successfully been
amended to stimulate entrepreneurship. This encourages
entrepreneurs to take advantage of market opportunities.
As Figure A22 indicates, many Tanzanians believe that the
country is a cost-competitive place to do business relative to
other regions in which they could conceivably operate their
businesses.
Early Stage
Businesses
Responses to Survey
Questions on Finance
Growing Firms Comments
I am aware
of various sources
of capital
There is
suf?cient supply
of capital
The cost of capital
does not hinder
company formation
While many businesses
are aware of potential
sources of funding...
Limited supply,
particularly for
newer ?rms
...the cost of,
and requirements for,
access is prohibitive
26% 31%
49%
24%
22%
68% 56%
35%
16%
54%
24%
21%
70%
18%
6%
13%
55%
12%
Neither Agree/Disagree Disagree Agree
Access to Capital in Tanzania
FIGURE A20
Respondents agreeing that their state is a cost
competitive place for various aspects of business
Doing Business Starting a
Services
Business
Starting a
Manufacturing
Business
74%
66%
68%
FIGURE A21
Tanzanian Cost Competitiveness
Tanzania SSA Peer Average
2.56 2.63 2.52
FIGURE A22
37
APPENDIX
32
Average daily exchange rate on 5 December 2012: USD/TZS = 0.00062.
33
‘NMB Jahudi Loan Scheme,’ NMB Micro?nance, 2012.
34
‘Ease of Doing Business,’ World Bank, 2012.
35
Ongoing Reforms, Tanzania Investment Centre, 2012.
Tanzania embarked on a wide reform programme from the
mid- to late-1990s that included a ?ve-year, multi-sectoral
Business Environment Strengthening for Tanzania (BEST)
programme to reduce the administrative and regulatory burden
of doing business. Survey results suggest that these initiatives
around business registration, land and labour law reforms
have begun to have a positive impact on the entrepreneurial
environment.
35
Caution must be taken when considering these results as
some of the positive views regarding administrative burdens
are driven by an ability to curtail weakly enforced regulations.
Forty-nine percent of respondents believe that to successfully
launch a new venture, it is acceptable to informally hire employ-
ees. If the country moves to further formalise industries and
processes, policymakers and other stakeholders would need
to confront a challenge of preparing entrepreneurs to operate
more formally while reducing potentially detrimental unintend-
ed consequences of signi?cantly higher administrative costs.
38
COUNTRY HIGHLIGHTS
•
GHANA
G
H
A
N
A
MACROECONOMIC CONTEXT
Ghana has experienced strong and continuous economic
growth over the past 10 years and GDP forecast to con-
tinue to grow at 6% to 7% annually in the coming years.
36
It is the second-largest economy in West Africa, with a 2011
GDP of USD 39.1 billion, and was the fourth-fastest growing
economy in the region from 2006 to 2010.
37
Ghana’s economic
growth was primarily driven by the revised GDP in the oil
sector, construction, transport and ICT.
38
Agriculture is also a
key economic driver, contributing approximately 30% to GDP.
39
The business environment in Ghana is relatively conducive
to starting new businesses, and the country was ranked 64th
in the World Bank’s Ease of Doing Business Index for 2012.
40

Unemployment and the population below the poverty line, at
11% and 28.5% respectively, are low compared to other African
countries.
41
While corruption remains an issue, overall, Ghana
has a stable socio-economic environment and provides
entrepreneurs with a relatively enabling environment to launch
and grow their businesses.
ENTREPRENEURIAL LANDSCAPE
Entrepreneurs in Ghana cited the limited supply of capital
and business support services as the main challenges in their
entrepreneurial environment. Market openness, the ease of
doing business and positive attitudes towards entrepreneurship
are key enablers.
F
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M
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Entrepreneurship Assets Business Assistance
Policy
Accelerators
Motivations
Positive attitudes
towards entrepreneurship
Limited admin burdens and relative
market openness enable entrepreneurs
to pursue attractive opportunities
Supply of capital lags both
SSA and global peers
Limited business support services,
particularly government programmes
I
n
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x
5
4
3
2
1
Peer
Average
Ghana
SSA
3
0
:

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2
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1
1
:

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f

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v
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s
4
:

E
x
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t

S
t
r
a
t
e
g
i
e
s
FIGURE A23
Ghana’s
6th-Level
Composite
Indicators
vs. Peers
39
APPENDIX
KEY CHALLENGES
The supply of business support for entrepreneurs is
perceived to be inadequate, and government programmes,
in particular, are dif?cult to access.
Sixty-four percent of respondents indicated that government
programs are not suf?cient to support new ?rms. Where these
programs are available, they do not always meet the needs
of entrepreneurs; only 8% of respondents are of the opinion
that government programs provide high-quality services to
new and growing ?rms. Challenges in accessing these limited
support systems are further compounded by corruption, with
entrepreneurs suggesting that it is almost impossible to receive
government support legitimately without engaging in some
form of corruption: patronage and nepotism have been identi-
?ed as the most common forms practised.
42
The Commission on Human Rights and Administrative Justice
and the Serious Fraud Of?ce form Ghana’s two main anti-
corruption bodies. However, the bodies need to be capacitated
to enable them to curb corruption.
43
As per Figure A25,
44
the availability of capital for new and
growing ?rms is perceived to be insuf?cient. Ghana lagged
both African and global peers on metrics related to the
supply of capital—particularly with respect to equity capital.
Additionally, entrepreneurs ?nd it dif?cult to access the limited
pool of ?nancing with interest rates and collateral requirements
often proving unaffordable.
There have been some positive steps taken to assist entrepre-
neurs with low-cost, long-term ?nance. The Venture Capital
Trust Fund (VCTF) was established by the Government of
Ghana in 2004 to make equity and quasi-equity investments
in small and medium businesses through ?ve venture capital
?nancing companies.
45
A key to success for VCTF has been the
provision of technical and management expertise to capacitate
small business owners. Initiatives that bundle funding and
business support in this way stand to make a signi?cant
impact in environments where entrepreneurs often do not
have the resources or skills.
KEY STRENGTHS
Entrepreneurs in Ghana expressed positive sentiments
regarding the legislative environment for new and
growing businesses.
As illustrated in Figure A26,
46
Ghana outperformed SSA and
global peers on metrics related to administrative burdens. This
aligns with World Bank research, which has ranked Ghana 64th
out of 185 countries on the Ease of Doing Business rankings.
47

While this ranking only places Ghana in the second quartile of
global rankings, indicating that there is still room for improve-
36
World Economic Outlook Database, International Monetary Fund, 2011.
37
Ghana Country Overview, World Bank, 2012.
38
Ibid.
39
Agriculture Facts and Figures, MoFA/Ghana Statistical Service, 2010.
40
Ease of Doing Business Rankings, World Bank, 2012.
41
Ghana Country Overview, CIA World Factbook, 2012.
42
‘Political Economy Analysis of Corruption in Ghana,’ All Africa, 2012.
43
Ghana Country Pro?le, Business Anti-Corruption Portal, 2012.
44
A composite of survey questions related to supply and access to debt and
equity ?nancing, as well as other ?nancing and exit strategies.
45
Venture Capital Trust Fund website.
46
A composite of survey questions related to government impact and regulations.
47
Ease of Doing Business in Ghana, World Bank, 2013.
Administrative Burdens Composite Indicator
Ghana SSA Peer Average
2.87 2.96 2.87
‘ The process of registering a business is extremely easy. You walk
into the building, ?ll out some forms, hand them in, and within days,
your business is ready to go.’
— Entrepreneur, Ghana
‘ The government started some credit facilities, but if you are not one
of their cronies, then you can’t get credit.’
— Entrepreneur, Ghana
Responses to
the statement:
‘There is a
suf?cient number
of government
programmes to
support new ?rms’
Disagree
64%
Agree
18%
Neither
Agree/
Disagree
18%
FIGURE A24
Supply of Capital Composite Indicators
2.24 1.90 2.54
Ghana
Equity Capital
Debt Capital
SSA Peer Average
2.30 2.14 2.57
FIGURE A25
FIGURE A26
40
COUNTRY HIGHLIGHTS
•
GHANA
ment, Ghana is well ahead of many African counterparts and
is ranked 5th out of 46 countries in the World Bank’s Ease of
Doing Business rankings for SSA.
48
When starting a new
business, for example, the average time to register a business
in Ghana is 12 days compared to an average of 34 days in the
rest of SSA.
49
The Ghanaian economy, with limited industry concentration,
enables entrepreneurs to pursue opportunities in relatively
open markets. Survey respondents indicated that it is relatively
easy for entrepreneurs to enter new markets, suggesting that
there is signi?cant potential for small businesses to make an
impact in key sectors. Currently, however, many entrepreneurial
ventures in Ghana operate in the informal sector, and there
may be a need to formalise in order to become more active
participants in the economy.
There is evidence that a strong culture of entrepreneurship is
emerging in Ghana. Entrepreneurs displayed positive attitudes
towards income tax and bankruptcy—issues that typically deter
people from starting new businesses. As such, indigenous
entrepreneurs are making a signi?cant contribution to the
economy, with small, medium and micro-enterprises employing
approximately 70% of labour.
50
48
Ease of Doing Business in Sub-Saharan Africa, World Bank, 2012.
49
Ease of Doing Business in Ghana, World Bank, 2013.
50
Ibid.
New and growing ?rms can
enter markets without being
unfairly blocked by
well-established ?rms
New and growing ?rms can
easily enter new markets
41%
37%
33%
28%
26%
24%
Market Openness Questions
Ghana SSA Peer Average
FIGURE A27
41
APPENDIX
S
.

A
F
R
I
C
A
MACROECONOMIC CONTEXT
South Africa is the economic powerhouse of Africa,
accounting for approximately 20% of the continent’s
USD 1.9 trillion GDP.
51
The country has an abundant supply of natural resources, as
well as modern infrastructure that supports relatively ef?cient
distribution of goods to major urban centres throughout the
region. A well-developed formal sector exists, with sophisticated
legal, communications, energy and transport sectors, as well
as a ?nancial sector that compares to global peers and boasts
of a stock exchange that is the 18th largest in the world.
52
The
country has high industry concentration with most sectors
being dominated by a few large ?rms.
In spite of its developed economic infrastructure, South
Africa continues to experience severe income inequality,
and 50% of the population lives below the poverty line with
limited prospects of ?nding employment. South Africa’s GINI
coef?cient, at approximately 63, is one of the highest in
the world.
53
In addition, the country is plagued by high
unemployment due to the misalignment of the skills required
by the economy and those possessed by the populace.
The government has committed to fostering entrepreneurship
to advance its economic development and, in particular, job
creation priorities. This is in recognition of the fact that
investment in the development of small businesses has been
among the key ingredients of success for many successful
economies. The impact is, however, still limited; total early
stage entrepreneurial rates in South Africa are approximately
one-third of comparable low to middle income countries so
there is still potential to improve.
54
F
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B
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s
M
i
n
d
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t
Entrepreneurship Assets Business Assistance
Policy
Accelerators
Motivations
Although infrastructure is
better than African peers,
respondents were negative
Legislation favours large
businesses that can absorb
costs of compliance
Education does not equip
people to manage or work
in entrepreneurial ventures
Financing strategies give
entrepreneurs alternatives to
traditional debt and equity
I
n
d
e
x
5
4
3
2
1
Peer
Average
South Africa
SSA
A culture that supports
entrepreneurship is evident
3
0
:

A
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2
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2
9
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s

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a
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k
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y
1
1
:

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f

B
u
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v
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s
4
:

E
x
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S
t
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a
t
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g
i
e
s
FIGURE A28
South Africa’s
6th-Level
Composite
Indicators
vs. Peers
42
COUNTRY HIGHLIGHTS
•
SOUTH AFRICA
ENTREPRENEURIAL LANDSCAPE
In spite of South Africa’s comparatively more developed
formal economy and related services, perceptions of
local entrepreneurs and service providers are surprisingly
more negative than African counterparts across many
components.
As illustrated in Figure A28, South Africa underperforms both
SSA and global peers when assessed against most measures,
including infrastructure where the country could have been
expected to fare better. Complex legislation and the limited
availability of appropriate skills and talent for entrepreneurial
ventures present signi?cant challenges for new and growing
businesses. In contrast, the sophistication of ?nancial markets
is an enabler with entrepreneurs in South Africa enjoying
access to a more diverse range of ?nancing strategies than
both SSA and global counterparts. An emerging culture of
entrepreneurship is also evident.
KEY CHALLENGES
The complexity of legislation in South Africa, coupled
with the harsh penalties imposed for non-compliance, is
a signi?cant constraint for new entrepreneurial ventures,
as illustrated in Figure A29.
55

Survey ?ndings suggest that the impact of government regula-
tions on new businesses in South Africa generally fared worse
than those in peer countries. In-depth interview respondents
repeatedly cited the requirements of the Consumer Protec-
tion Act,
56
Labour Relations Act
57
and National Credit Act
58
as
onerous and time consuming. Entrepreneurs additionally felt
that regulations placed an unfair burden on their businesses
vis-à-vis large, well-established ?rms that are better positioned
to absorb the costs of compliance. Studies conducted by the
SBP con?rm this perception: the average cost of compliance
for small businesses was estimated at approximately 8.3% of
turnover compared to only 0.2% for big businesses.
59
A number of government initiatives have been put in place
in order to allow for the development of more nuanced
legislation that is conducive for small and new businesses.
Tangible results, however, have not yet been realised. The
National Small Business Advisory Council, for example, was
established in 2006 with the mandate to advise the Department
of Trade and Industry on how to address the impact of current
and new legislation on small businesses.
60
Capacity constraints
have prevented the council from delivering against this
mandate, and as such, further measures will be necessary.
61
There is limited availability of skills for entrepreneurial
ventures, as illustrated in Figure A30. Schools, whether pre-
or post-secondary, are not seen to devote enough time to
teaching entrepreneurial courses. As such, school-leavers are
not well equipped to manage new ?rms. The schooling system
does not provide the critical thinking and problem-solving
capabilities that are vital to the success of entrepreneurs and
is perceived to prepare students to seek employment in large
corporations. Entrepreneurs also face signi?cant challenges
when trying to recruit skilled candidates, in the face of
competition for talent from large ?rms with well-known brands
and more attractive compensation packages.
‘Schools Devote Enough Time
to Teaching Entrepreneurship’
Primary &
Secondary
University &
College
‘Many People Can
Manage New Firms’
75%
64%
79%
12%
15%
13%
21%
9%
12%
Agree
Neither
Agree/
Disagree
Disagree
Responses to Questions on Skills and Talent
‘ I spend a lot of time training employees and then big supermarket
chains like Pick N’ Pay come in and steal them. I try to keep them by
improving their education and thereby inspiring loyalty.’
— Entrepreneur, South Africa
51
‘Investing and Doing Business in South Africa,’ Department of Trade and
Industry, 2012.
52
South Africa Country Summary, CIA World Fact Book, 2012.
53
Gini Coef?cient Rankings, World Bank, 2009.
54
Total Early Stage Entrepreneurial Rates, Global Entrepreneurship Monitor, 2010.
55
A composite of survey questions related to government regulations and policies.
56
Act 68 of 2008.
57
Act 66 of 1995.
58
Act 34 of 2005.
59
‘Counting the Cost of Red Tape for Business in South Africa,’ SBP, 2004.
60
National Small Business Advisory Council Strategic Business Plan, 2010–2013.
61
The Integrated Small Business Development Strategy in South Africa
2004–2014, Department of Trade and Industry.
Government Regulations Composite Indicator
South Africa SSA Peer Average
2.81 2.56 2.86
FIGURE A29
FIGURE A30
43
APPENDIX
Survey respondents had negative perceptions regarding
infrastructure; although these are likely in?uenced by unfa-
vourable comparisons to the developed world. Only 32% of
the survey respondents believed that the physical infrastructure
in South Africa adequately supports new and growing ?rms.
Participants in the in-depth interviews suggested that electricity
and internet are the main drivers behind the perception that
infrastructure in South Africa is problematic for small businesses.
Recent increases in electricity prices are beginning to make a
dent in business pro?ts, and this trend will continue as Eskom
tariffs are increased over the next ?ve years.
62
Internet speeds
and rankings signi?cantly lag global peers, although analysts
believe that new ?bre optic cables coming online in the short
term may ease prices and enhance service.
63
KEY STRENGTHS
South Africa’s ?nancial sector emerged as a key enabler
for entrepreneurs.
The sophistication of ?nancial markets provided entrepreneurs
with an array of options for ?nancing their businesses. Entre-
preneurs in South Africa were notably more au fait with the use
of alternative ?nancing vehicles, such as stock options, pension
funds and mergers and buy outs, than their counterparts not
only in Africa but the rest of the world as well.
62
Tariffs, Eskom website, 2012.
63
‘The State of the Internet’ 2nd Quarter Report, Akamai, 2012.
‘ I know that my premises are
quite small but it’s still shocking:
my electricity bill is now costing
more than my rent.’
— Entrepreneur,
South Africa
South Africa UK USA
5.7Mbps
1.8Mbps
6.6Mbps
‘Physical Infrastructure Suf?ciently Supports SMEs’ Internet Speeds & Rankings Electricity
Disagree
49%
Agree
32%
Neither
Agree/Disagree
19%
Infrastructure Constraints in South Africa
81st
18th
9th
There is a growing culture of entrepreneurship in the country;
although there is still some risk aversion. Nonetheless, the
fear of failure is not particularly high. Entrepreneurship is
increasingly being viewed as a legitimate career option and
individuals are being encouraged to take responsibility for their
individual success. While risk aversion and the fear of failure
do continue to deter some, survey respondents indicated that
a large majority of those who do take the plunge to start
entrepreneurial ventures and fail are not too afraid to try again.
FIGURE A31
Most people think that individuals who
start new ?rms are competent
People emphasise individual
responsibility for career success
People encourage risk taking in one’s
career
It is common for people who have failed
in business to try again
69%
62%
28%
67%
Positive Responses to Questions Related to Culture
FIGURE A32
44
Omidyar Network would like to acknowledge several individuals
and organisations for their contributions to the Accelerating
Entrepreneurship in Africa Initiative: the entrepreneurs who took
part in the Monitor Survey; the many leaders who participated
in the Entrepreneurship in Africa Summit last October; the
panellists from the Summit: Moky Makura (facilitator), Pedro
Arboleda, Patrick Awuah, Hakeem Belo-Osagie and Paul Harris;
Palesa Makanda for her assistance at the Summit; and Af?ong
Williams for her support with writing this report.
We would also like to thank our valued partners: African
Leadership Network, speci?cally Godfrey Chesang, Acha Leke,
Indranil Sarker and Fred Swaniker; and the Monitor Group,
speci?cally Boikanyo Mothibatsela, Tafadzwa Samushonga,
Lara Sittig and Tebogo Skwambane, for their ongoing
collaboration, vision and insight.
The wealth of input and involvement we have received
from these individuals and organisations is greatly
appreciated and continues to be critical to nurturing Africa’s
entrepreneurial ecosystem and to leading the continent
towards greater prosperity.
About Omidyar Network
Omidyar Network is a philanthropic investment ?rm dedicated
to harnessing the power of markets to create opportunity for
people to improve their lives. Established in 2004 by eBay
founder Pierre Omidyar and his wife Pam, Omidyar Network
invests in and helps scale innovative organisations to catalyse
economic and social change. As of March 2013, Omidyar
Network has committed more than $611 million to for-pro?t
companies and nonpro?t organisations that foster economic
advancement and encourage individual participation across
multiple initiatives, including entrepreneurship, ?nancial
inclusion, property rights, government transparency, consumer
Internet and mobile. To learn more, visit www.omidyar.com.
About Monitor Group
Monitor Group is a global strategy consulting ?rm that works
with the world’s leading corporations, governments and social
sector organisations to drive growth on the issues that are
most important to them. Founded and based in Cambridge,
Massachusetts, the ?rm offers a range of advisory, capability-
building and capital services designed to unlock the challenges
of achieving sustained growth. Monitor brings leading-edge
ideas, approaches and methods to bear on clients’ toughest
problems and biggest opportunities. In January 2013, Monitor
merged with Deloitte Strategy to form Monitor Deloitte.
ACKNOWLEDGEMENTS
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