Entrepreneurship Gains Ground In Africa But Entrepreneurs Still Lack Key Support

By Niemah Davids

The 2015 Global Entrepreneurship Monitor (GEM) Report, released last week, finds that in Africa, entrepreneurship is increasingly perceived as ‘high-status’ and that around two-third of adults see entrepreneurship as a way to improve their lives, but African entrepreneurs still suffer from a lack of enabling support – including access to finance.

Sixty-six percent of adults worldwide see entrepreneurship as a good career choice, and in Africa, more than half of the working-age population feel they have the ability to start a business – this according to the Global Entrepreneurship Monitor (GEM) 2015 Global Report released last week.

In its 17th consecutive year, the annual report continues to serve as the largest single study of its kind.

GEM takes a point-in-time snapshot of entrepreneurship and business activity around the world. In 2015, 62 economies around the world participated in the study including eight African economies (Botswana; Burkino Faso; Cameroon; Egypt; Morocco; Senegal; South Africa; and Tunisia).

Top performing African economies with regards to entrepreneurship are Botswana and Senegal. Both of which exhibit an upward trend year-on-year in terms of the number of adults starting new business 33% and 38.6% respectively (measured as Total Early-Stage Entrepreneurial Activity or TEA by GEM).

Botswana and Senegal also have one of the highest stated rates of entrepreneurial intentions with over 60% of adults in those countries reporting that they intend to start a business over the next three years. The global average for this across all 60 participating economies in 2015 was 21%.

High intentions in these two countries is consistent with high opportunity and capability perceptions – meaning that people are optimistic that they have the skills to start a business (75%) and believe that there are good opportunities to do so. They also have a low fear of failure, with less than one-fifth feeling constrained by this.

One of the surprise findings of this year’s research was that the majority of entrepreneurs worldwide are fuelled by opportunity rather than necessity – even in less developed factor and efficiency-driven economies, which tend to comprise most of African, Asia and Oceania, and Latin America and the Caribbean.

An average of 69% of entrepreneurs in these economies state that they started their business because of an opportunity and not out of necessity. By contrast, 78% of adults in innovation-driven economies, which account for both North American and most European economies in the sample, said they were motivated by opportunity.

“It is often a misperception that most entrepreneurs in less-developed economies are necessity-motivated,” said Babson College Professor and report lead author Donna Kelley . “The reality is that entrepreneurial opportunities of all types exist in every part of the world, and there are ambitious entrepreneurs everywhere with the aspirations to pursue them.”

However, despite buoyant entrepreneurship intentions the GEM data also reveal a persistent imbalance between the rate of early-stage entrepreneurship in Africa and more established businesses. While Botswana has one of the highest TEA rates in the global sample, established business ownership is less than 15% of the TEA level.

According to GEM Executive Director and report author Mike Herrington , this should be cause for concern about business sustainability.

“Whether these numbers are due to societal values, individual attributes and /or components of the entrepreneurship ecosystem – policy makers need to understand what is causing this so it can be addressed,” he says.

It is important that economies foster more established businesses because generally it is such businesses that create much-needed jobs and fuel economic growth and development, Herrington explains.

Over 80% of entrepreneurs in factor- and efficiency-driven economies project adding one or more jobs to their economies, besides employing themselves, making them a potent economic force.

“Understanding what inhibits and what enhances entrepreneurship in various contexts has never been more important, as many economies are struggling - especially those in developing countries, and unemployment is increasing,” says Herrington. “The Global Entrepreneurship Monitor allows us to gain additional perspective on entrepreneurial activity, and to look at best practices that are helping to promote small and medium enterprise development.”

GEM data show that one of the key factors contributing to business discontinuance across all economies is a lack of profitability. About one third of business exits cite lack of profitability as a factor. Factor- and efficiency-driven economies including Botswana and Senegal – as well as in other African countries such as Tunisia, Morocco and South Africa – additionally identify a lack of finance as a major reason for leaving a business. Together with a lack of profits or finance explains half or more of the exits in these African economies.

According to Herrington, key areas that policy makers need to address, especially in factor- and efficiency-driven economies found in Africa include enriching the availability and variety of funding sources via appropriate regulatory frameworks that enable new funding schemes to prosper, as the United States has done with crowdfunding, continue with the reform of regulatory systems to make it ever-easier to start and run a business, and expand infrastructure, especially IT infrastructure, and education.

About the GEM Report
This is the 17th year that GEM has tracked rates of entrepreneurship worldwide. The report surveyed entrepreneurs across multiple phases, and assessed their characteristics, motivations, and ambitions, as well as the attitudes societies have toward such activity.

It covers results based on 60 economies that completed the Adult Population Survey (APS), and 62 economies that completed the National Expert Survey (NES). The aim of this report is to inform academics, educators, policy-makers, and practitioners about the multi-dimensional nature of entrepreneurship around the world, advancing knowledge and guiding decisions that can lead to the conditions that allow entrepreneurship to thrive.

The 2015 GEM Global Report is authored by Babson College Professor and Frederic C. Hamilton Chair of Free Enterprise, Donna Kelley; J.J. Strossmayer University of Osijek Professor and UNESCO Chair in Entrepreneurship, Slavica Singer; and University of Cape Town Professor and Global Entrepreneurship Monitor Executive Director, Mike Herrington.

Key Findings/Global
Societal Values about Entrepreneurship

  • In factor and efficiency-driven economies, two-thirds of adults, on average, think entrepreneurship is a good career choice.
    • In innovation-driven economies, 53 percent have this same belief.

    Across 60 economies, 68 percent of working-age adults, on average, perceive high status for entrepreneurs in their societies.

    61 percent of adults believe entrepreneurs receive positive media attention.

    Three countries from the Asian economies (Kazakhstan, Philippines, and Indonesia) exhibit the highest levels on all three indicators.

    Self-Perceptions about Entrepreneurship

    • 42 percent of working-age adults see good opportunities around them for starting a business.
      • Only one-third of these who see opportunities feel constrained due to fear of failure.

      More than half of the working-age population, on average, feel they have the ability to start a business

      High levels on these indicators can be seen in Africa (Senegal, Burkina, Faso, and Botswana) and Barbados, where over half of the adults in these countries see opportunities,

      • Less than one-fifth of those seeing opportunities in these countries feel constrained by fear of failure, and
      • Close to three-fourths or more believe they have the capabilities to start.

      21 percent of people across 60 economies, on average, intend to start a business in the next three years.

      Phases and Types of Entrepreneurial Activity

      • Average TEA rates tend to be highest in the factor-driven economies, decreasing with higher levels of economic development (21 percent in factor-driven, 15 percent in efficiency-driven, and 8 percent in innovation-driven).
      • Established business ownership is also highest in the factor-driven group (13 percent for factor-driven, 8 percent for efficiency-driven, and 7 percent for innovation-driven).
        • The proportion of established business owners relative to TEA in factor-driven economies is smaller than in the innovation-driven.

        High rates of both TEA and established business ownership are exhibited in Senegal and Ecuador, where more than one-third of the population is starting or running a new business, and over one-sixth is running a mature one.

        Entrepreneurial Employee Activity (EEA) is highest in the innovation-driven economies (1 percent for factor-driven, 2 percent for efficiency-driven, and 5 percent for innovation-driven).

        • Norway, Australia, and the United Kingdom report the highest EEA rates, at 8 percent or more of their adult populations.

        Discontinuance is highest in factor-driven economies (8 percent for factor-driven, 5 percent for efficiency-driven, and 3 percent for innovation-driven).

        • A lack of profits or finance explain half or more of the exits in factor and efficiency-driven economies.
        • The innovation-driven group shows equal proportions of exits due to unprofitability compared to the other two development stages, but these economies are less than half as likely to name finance problems as a reason for business exits.
        • Both the efficiency-driven and innovation-driven economies show four times the proportion of exits due to bureaucracy compared to the factor-driven group.

        Motivation for Early-Stage Entrepreneurial Activity

        • Most entrepreneurs worldwide are motivated by opportunity, rather than necessity.
          • The innovation-driven economies show the highest proportion of opportunity-motivated entrepreneurs, at 78 percent.
          • In the factor and efficiency-driven economies, 69 percent stated they chose to pursue an opportunity as a basis for their entrepreneurial motivations.

          Among entrepreneurs with opportunity-driven motives, a portion seek to improve their situation, either through increased independence or income (versus maintaining income). GEM refers to these as improvement-driven opportunity (IDO) entrepreneurs.

          • GEM’s Motivational Index reveals that there are one and a half times as many IDO entrepreneurs as necessity-driven ones, on average, in factor-driven economies, and twice as many in efficiency-driven economies.
          • In innovation-driven economies, there are three and a half times as many IDO entrepreneurs as necessity-motivated ones.

          Gender and Age Distribution of Early-Stage Entrepreneurial Activity

          • Among development levels, the factor-driven economies have the highest average female TEA rates at 20 percent, and the highest rate relative to men.
            • Among those entrepreneurs, however, women are nearly one-third more likely to start a business out of necessity than men.

            In six economies, women show equal or higher entrepreneurship rates than men (Vietnam, Philippines, Thailand, Malaysia, Peru, and Indonesia).

            Among the 45 participating economies from 2013-2015, several showed year-over-year increases in ratios of both female to male entrepreneurship rates, and female to male opportunity motives, bringing these economies closer to gender parity in either or both measures.

            • Among these are two European countries (Luxembourg and Greece), and three from Latin America and the Caribbean (Ecuador, Colombia, and Panama).

            The overall age pattern for entrepreneurship shows the highest participation rates among the 25-35 and 35-44 year-olds – people in their early and mid-careers.

            Industry Sector Participation

            • Nearly half or more of the entrepreneurs in the factor and efficiency-driven groups operate wholesale or retail businesses.
            • Nearly half of the entrepreneurs in the innovation-driven economies started businesses in information and communications, as well as financial, professional, health, education, and other services industries.
              • An emphasis in particular sectors can be seen in several economies, including agriculture in India, mining in Tunisia, manufacturing in Egypt, wholesale/retail in the Philippines, information and communications technology in Sweden and Belgium, finance in Slovakia, and professional services in Norway.