Enterprise and Economic Development in Africa
Table of contents(18 chapters)
Part A: Enterprise and Entrepreneurship in Africa
The debate that entrepreneurship is an engine of economic development has been a long-standing one. The higher the level of entrepreneurial activities, the higher the economic development. However, this literature is contradictory or elusive in Sub-Saharan Africa. Entrepreneurial activities are high in Africa, but economic development is not. Using Global Entrepreneurship Monitor (GEM, 2017) data, the chapter discusses some of the contradictory factors. Further data were collected from 60 businesses, 20 each from Cameroon, Nigeria and Uganda for more clarification in 2019. The results show that the economic development is solely measured in economic terms. Entrepreneurship in Africa operates in an embedded context quite different from that of developed nations. Africans are often only making do with the environment in which they find themselves; thus, entrepreneurship in Africa should not be seen as unproductive considering the context and motives of the entrepreneurs.
Rural farm and non-farm based entrepreneurial activities within Sub-Saharan Africa (SSA) play significant roles in job creation as well as food security for the majority of rural dwelling citizens (UNCTAD, 2018). This chapter examines the policies and strategies for supporting both farm and non-farm entrepreneurial activities within rural communities in SSA. In order to achieve this, the authors have completed a systematic literature review of both conceptual and empirical work on the role of policies and strategies for rural entrepreneurship in selected SSA, namely Ethiopia, Rwanda, Sierra Leone, and the United Republic of Tanzania (URT). This was completed alongside an assessment of the constraints and potential opportunities in order to stimulate linkages between rural entrepreneurship and structural economic transformation including the potential roles of both farm and non-farm based entrepreneurial activities. Key linkages between rural farm and non-farm based entrepreneurial activities are emphasised The chapter also highlights mechanisms through which governments and private sectors can work together for the maximisation of available opportunities and best practices that rural entrepreneurship can offer for job creation among rural communities in SSA.
In this chapter, the authors examine trust and social networks among entrepreneurs operating in a developing market context. At the centre of this study, trust emerges from the interplay of a range of cultural-specific factors, each of which describes how social relations shape economic action. Using case studies of exporting Nigerian small and medium sized enterprises, the authors document how exporting arrangements are enforced across West African markets. Interview data reveal how entrepreneurs take advantage of indigenous trust-based relationships to enforce exporting agreements. It is clear that exporting activities are shaped by trust and networks of kinship and market associations that permeate the West African region. This chapter facilitates a better understanding of trust and the range of indigenous relationships that underpin exporting activities in Nigeria and particularly across West Africa.
Part B: Gender Entrepreneurship and Youth Unemployment in Africa
Within developing countries, particularly in Africa, there is an emerging literature which highlights the unique obstacles faced by women entrepreneurs who start and develop their own businesses (De Vita, Mari, & Poggesi, 2014; Jamali, 2009; Minniti & Naude, 2010; Naude & Havenga, 2005; Nziku & Struthers, 2018). A key objective of this chapter is to critically appraise some of the conceptual approaches adopted in this literature. In so doing, the authors revisit a seminal paper first developed by Granovetter (1973) which suggested that female entrepreneurs, instead of being disadvantaged by the so-called ‘weak ties’ that bind their business networks, actually enjoy compensating benefits which Granovetter referred to as the strength of weak ties (SWT). Building on the conceptual work of Nziku and Struthers (2018) which developed an innovative taxonomy for analysing the SWT concept within a Principal-Agent (P-A) paradigm, the chapter will set out new insights which challenge some of the assumptions of the extant entrepreneurship literature. In particular, that women are inherently more risk averse in their business decision making than men. The theoretical context for this will be derived from a behavioural economics methodology first developed by Kahneman and Tversky (1979). They introduced the concept of loss aversion as a more realistic approach to attitudes towards risk on the part of entrepreneurs than risk aversion. The chapter contends that the loss aversion perspective may be more appropriate to the decision-making frame adopted by female entrepreneurs, especially in the context of Africa as well as in other developing regions of the world. The chapter will therefore suggest that such an approach can yield fresh insights on the topic of female entrepreneurship which the extant literature heretofore has not addressed, though this will have to be subsequently tested empirically.
Women entrepreneurs face a myriad of challenges in running their enterprises, such as inadequate market information for their products or services, lack of marketing skills, insufficient capital to start and run the business and unfavourable policies in county governments among others, leading to unwillingness to participate in businesses. To overcome these challenges, a number of initiatives had been put in place as a way of empowering these women, for example, Women Enterprise and Development Fund (WEDF) aimed at financing and sustenance of women-owned small and medium enterprises (SMEs). Despite these initiatives, women continue to lag behind in terms of entrepreneurship leading to this study to unearth underlying issues pertaining to women entrepreneurship and empowerment. The study was guided by the following objectives: to determine the effects of WEDF loans on women empowerment, to evaluate accessibility of credit by women entrepreneurs, to establish the role of capacity building on the performance of women enterprises and to establish the effects of women enterprises on household livelihoods. This study is significant as it aimed at establishing the relationship between gender enterprise in relation to women empowerment by use of descriptive and explanatory research designs. The study targeted 246 women entrepreneurs in Eldoret whereby 51 respondents were sampled randomly who were issued with questionnaires having closed- and open-ended questions. Secondary data obtained from the banks were also used to enhance the accuracy of the data. The study established that WEDF loans had a positive effect on women empowerment and an improved household livelihood. On accessibility of loans, a few entrepreneurs had benefitted as women were required to be in groups in order to benefit and in addition, have collaterals. Performance of business enterprises owned by women who possessed marketing skills was good as opposed to those without the skills necessitating capacity building. The study therefore recommends that there is a need to encourage vulnerable groups to participate in economic development and women entrepreneurs to form groups which will enable them do table banking hence making them financially empowered.
This chapter uses discourse analysis to explain why entrepreneurship has become a primary response to Africa’s youth employment challenge. It analyses almost 20 years of academic literature and publications from one of the world’s foremost authorities on entrepreneurship: the Global Entrepreneurship Monitor (GEM). The study found that youth were positioned within a discourse of entrepreneurial essentialism; where entrepreneurship was narrativised as the only option for youth employment; and youth were framed as entrepreneurship being the natural solution for them. Youth were concurrently framed within numerous contradictory entrepreneurial discourses which were used to elevate and legitimise entrepreneurship as the key pathway for addressing Africa’s youth employment challenge. An important finding in this study was that the dominant model of entrepreneurship being promoted by GEM to address the challenge is a mainly skills-based pathway to self-employment and low-growth microenterprise development. This is concerning for two reasons: firstly, global evidence does not demonstrate much support for such an approach, and secondly, it undermines other responses to youth unemployment, particularly those which seek to address more structural, demand-side barriers to employment.
This chapter develops a conceptual framework of economic development of Algeria with a particular focus on youth entrepreneurship. Drawing on the opportunity-based approach of Drucker (1985) and the impact analysis theory (IAT) advocated by Murphy and Marvel (2008), Lenjo (2015), and Dontigney (2018), this proposed conceptual framework theoretically allows the integration of different perspectives including economic development of a country and youth entrepreneurship. In principle, the opportunity-based theory posits that entrepreneurship represents a response to a stimulus, through a business venture, where an unemployed person exploits opportunities engendered by social, technological, and cultural changes in the environment. The IAT is a paradigm that deconstructs the causes and effects of a phenomenon (i.e. youth entrepreneurship) to afford greater understanding and appreciation of the research agenda, while providing an indicative assessment of the overall impact of the issue (OECD, 2014). The authors discuss the core barriers (venture capital, foreign direct investments, bureaucratic obstacles, gender discrimination, and soft skills) to entrepreneurship in Algeria, Furthermore, the authors assess the different economic forces in Algeria that appear to be promoting or sustaining entrepreneurship, particularly in young people. These forces have a tendency to be connected to a broader possibility of economic development. Further analysis is required that demonstrates the potential upsides of promoting youth entrepreneurship. Thus, the authors attempt to answer a key question: What can be done to engage the youth in small business entrepreneurship across Algeria and thus implement a sustainable solution to the country’s employment problem?
Structural violence (SV) is related to the uneven distribution of resources which then leads to social exclusion and marginalisation of people. Johan Galtung (1969) also refers to it as social injustice and it is characterised by unequal access to education, health, water, food, shelter and other basic services. SV manifests itself through different forms of exclusion supported through both public and private institutions. Without support to address economic and educational opportunities, Zimbabwean youth continue to experience SV and high levels of social inequality (Chimucheka, 2012). Conflict transformation (CT) can help address SV since it provides processes and ways to build something desired thus altering the manifestation of the conflict (Waldman, 2009). CT involves action between parties that leads to both social change and justice (M. Evans, 2016). Social entrepreneurship (SE) can be used as a CT tool because it (i) identifies an unjust equilibrium that perpetuates exclusion and marginalisation, (ii) identifies opportunities and innovatively challenges the status quo to add social value and (iii) provides a better future for the marginalised communities through creating a new and stable alternative equilibrium (Baporikar, 2016). This chapter discusses the SV transformation model which the author tested to address the disparities faced by youth in an urban area in Zimbabwe. The action research, which took place between January and May 2017, was carried out in combination with capacity building, social support systems and community participation to address some of the SV indicators prevalent in the community. Whilst SE showed great potential in tackling SV in the community study, findings also reveal contestations between theory and practice. Some of the barriers identified in the field include the community’s failure to self-organise, lack of financial resources and buy-in from the local government. Future research could test the model in multiple settings and over longer periods to see its effectiveness.
A lot of literature has been generated showing the high unemployment rate in Africa and especially among the youth aged between 18 and 35 years. This glaring state of unemployment among the youth, including many educated graduates, has led them, in the course of time to despair, disillusionment, and consequent susceptibility to their involvement in anti-social behaviour including crime. For instance, the infamous radicalisation of the youth and great insecurity threats that come with this as currently being experienced in Libya, Mali, Nigeria, the Lake Chad Basin, Somalia, Sudan, South Sudan, and the Democratic Republic of Congo as advanced by Boko Haram, al-Shabaab, and al-Qaeda in the Islamic Maghreb and affiliates are all related to unemployment challenges. Additionally, the Arab Spring in North Africa experienced in 2010, as well as the xenophobic insurgences in South Africa, South Sudan, Nigeria, and in other countries across the continent, have all been attributed to youth unemployment and disillusionment. As a way of intervention, the African Union declared a decade of youth empowerment between 2008 and 2019 which set the tempo for countries, organisations, and agencies across the continent in coming up with mitigation measures. Motivated by this spirit of assisting the youth towards a mindset change to be job and wealth creators and not job-seekers, Mount Kenya University (MKU) established the Graduate Enterprise Academy (GEA) in 2013. This chapter showcases the double-pronged approach adopted by MKU, an ISO 9001:2015 certified university in East Africa, towards promotion of entrepreneurial mindset among the youth in Africa through the GEA. More specifically, in collaboration with leading indigenous institutions and agencies in Kenya, the GEA was established in MKU in 2013 with a clear mandate of promoting youth-driven enterprises throughout the country and across the continent. More recently, since 2017, in collaboration with the Kenya National Commission for UNESCO, Leuphana University of Germany, and other stakeholders, MKU has embraced the Students Training for Entrepreneurial Promotion (STEP). STEP has thus been rolled out by MKU as a co-curriculum activity for undergraduate students as well as for training youth outside universities at various counties in Kenya. The STEP and GEA initiatives at MKU are presented in this chapter as a case study in terms of their implementation, strengths, challenges, and recommendations for possible replication and up-scaling to cover the entire continent.
Part C: Economic Development (Governance and Institutions) in Africa
The chapter examines why growth in African economies between 1996 and 2016 appears not to have led to improvements in the key governance indicators (GIs) of government effectiveness, rule of law and control of corruption. Comparative data from other continents are presented to provide a contextual perspective for the case of Africa. The central research question is why has the continent been witnessing economic growth in real terms but simultaneously regressive movements in these three key indicators of governance which are central to the concept of ‘development’ itself? The data span the period from 1996 to 2016 inclusive using the WGI database of the World Bank for 171 countries including 43 African countries. The country sample is selected to ensure the same countries are included in the WGI database across all years of the sample period. The data are analysed numerically in terms of relative and absolute deviations and graphically. The results demonstrate a clear trend in several continents of worsening GIs while real economic growth has been positive. However, the distribution of this negative trend is highly skewed towards the African countries in the sample. The findings suggest that, despite real growth, economic and social development (in the widest sense) is actually regressing in many countries. We offer alternative theoretical explanations for this (apparent) contradiction and a number of possible policy solutions. The data are from the WGI database and all efforts have been taken to ensure its reliability in this analysis. Although there are small differences in how indicators have been measured, these do not seriously affect the underlying trends found in the data. A new approach to establishing value for money in public sector organisations is suggested which at the same time will help strengthen public accountability, transparency and efficiency in the delivery of the government services to the general public. The chapter may provide a new or a different perspective on how societies should perceive government and its various agencies in order to raise accountability. The chapter is conceived from a very old debate: growth versus development but argues that the latter is almost impossible in the absence of good governance and provides analytical evidence as the basis for this conclusion.
This chapter examines the role firm specific and institutional variables (such as regulation and trust) in firms’ decision to register their economic activities with authorities. Our empirical analysis is based on a large data set gathered from 40 African countries on more than 11,000 small, medium and large firms via the World Bank Enterprise Survey covering the period 2006–2014. This chapter is aimed at reinforcing the limited but a growing body of literature focussing on determinants of informal entrepreneurship using firm-level databases. The analysis of this study shows in institutional environments where there is trust in public institutions such as courts, firms are less likely to stay unregistered. Concerning firm specific variables young firms are found to be more likely to stay unregistered but there is a non-linear relationship between age and length of years spent unregistered. Firms with exporting strategy and in foreign ownership are less likely to stay longer unregistered. There are significant gains if policy-makers focus on building trust in institutions, fighting corruption, embarking on meaningful enforcement of rule of law principles, providing services without reliance on predatory tax policies, reducing firm transaction costs via improved licensing and technology-assisted registration systems.
This chapter reviews the role of industrial parks (IP) as drivers of export-led industrialisation in Ethiopia. For several decades, IPs or special economic zones have been promoted as policy instruments to attract investment, create jobs and promote exports of manufactured goods. However, their popularity as policy instruments has been mainly associated with the successful export-led industrialisation of emerging economies in East Asia where IPs have played a critical role not only in attracting investment and promoting export-led growth but also transferring technology, promoting technological learning and industrial development and jump-starting the process of economic diversification and structural transformation. Ethiopia, along with other African countries, is among the latest to introduce IPs as major drivers of economic diversification and export-led industrialisation. As a newcomer, Ethiopia can learn many valuable lessons from more successful cases. This chapter explores some of the lessons that Ethiopia can draw from other countries’ experience as it continues to build additional parks to attract investment and push its industrialisation agenda.
RoSCAs in Africa: The Case of Egypt
Rotating Savings and Credit Associations (RoSCAs) are informal lending groups widely found in many developing countries around the globe. This chapter studies the interest-free RoSCAs in Egypt and how it compares to other RoSCAs in Africa. The chapter also examines the possible motives for RoSCA participation employing a primary dataset collected from Cairo, the Egyptian capital. The motives studied include access (or lack thereof) to the formal banking sector, religiosity, self-control, and social preferences. Trust and trustworthiness among RoSCA participants are also studied. The chapter shows that RoSCA participation is very popular among the sample respondents regardless of income levels, access to formal banking and religious views. RoSCAs, however, are shown to play an important role as a commitment device for savings and investment, including human capital accumulation when the self-control level is moderate or low. Social preferences and trust levels, on the other hand, are not found to be significantly different for RoSCA and non-RoSCA participants.
Trading soft commodities has become increasingly challenging with less liquidity in the market, making it very risky and even more costly. Ongoing geopolitical instability, climate change, complex supply chain and fluctuation in demand and supply resulted in a continued price volatility and market uncertainty. Soft commodity trading businesses are under an increasing pressure to adapt to political, economic and social changes. Therefore, this study explores the relationship between brokers and their buyers in the Algerian soft commodities market, with a particular focus on cereals (wheat) products. This study is based on the analysis of secondary data collected from various sources and anecdotal evidences from brokers of soft commodities in Algeria. The overall strategy of Algeria is to limit its reliance on imports. However, political dysfunction coupled with economic instability appears to discourage domestic and foreign investment and inhibit the development of this soft commodities sector. The brokerage firms of soft commodities (wheat, oils, milk powder, rice, coffee, etc.) are operating in a niche market within an environment of intense competition and highly demanding buyers. The striking success of the brokerage function depends on a close relationship formed between the actors (broker, seller and buyer).
This study uses a descriptive casual design and survey random sampling from 115 observations from five-star, four-star and three-star hotels due to the fact that they provide employee staff feeding or complimentary service. The Pearson correlation and multiple regression were used to test the direct and mediating effects for linear relationships between income tax and financial performance. Tax on adjusted net income has a significant effect on net income and non-significant effect on return on asset (ROA). This means that the level of income tax paid by the hotels after reintegration of non-deductible charges including complimentary staff feeding and other allowances reduced their assets and turnover in general thus slowing reinvestment. The findings reveal that firm liquidity had a significant effect on ROA. This indicates that the income tax pay-out decreases hotels’ cash flow resulting on loan diversification leverage. Shareholders are therefore forgoing their shares for reinvestment in different businesses other than hotels. The findings also reveal a significant effect of firms’ age on income tax on hotels’ financial performance. Simply paying income taxes is not lowered by the hotels’ age thus endorsing the concept of paying tax when income is available and vice versa when there is no income. Since Rwanda promotes investment and doing business for the private sector, the tax base increases the tax collection amount instead of collecting a small amount on a few number of tax paying hotels. This commends the tax administration review and frequently harmonised the tax procedures to hospitality sector and is the key development of their financial performance, which had been used by the hotels of the developed countries like the USA and Europe. This will improve Rwanda’s competitiveness in hotel induction and sustain hospitality business investment with tax base for government. It was pragmatic that hotels may directly deduct all related expenses before income tax calculation while others assimilate them into other similar expenditures. There is no formal way for accounting these hotel expenses, whereas the category of staffs benefitting are mainly junior staffs who, in turn, are low-wage holders. This does not leave space for hotel owners to take out incentives therefore leaving out hotels’ darkness in their earnings returns and staff welfare. This chapter presented the directorial policy, philosophy and practices in tourism or hospitality (hotel) sector in Africa. It has become relevant for harmonisation of financial performance while including all life cycle practices of hotels like staff feeding or complimentary service. This chapter is classified as an empirical study.
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