Access to finance is the biggest challenge to entrepreneurs in Africa

This past week I conducted a poll with members on VC4Africa. Specifically, I wanted to know what the community feels prevents (more) entrepreneurship on the continent. Is it the entrepreneurs, tough business models, lack of exits, the government, corruption or a lack of capital?

Akinyele Aluko, one of the respondents writes from the University of Calabar in Nigeria,’The hardest is getting funds for a start-up, however, other attendant problems are lack of ideas because our R&D system is very poor so innovation is limited. Corruption is another serious problem as well as lack of sincerity by our government.’ Fred Oduke, from the Makerere University in Uganda, expands, ‘It’s hard to get investors ready to invest in new ideas or emerging businesses. As well, we have a very hostile business environment, where government, being the biggest buyer, is deeply tipped in corruption and only those connected can access government contracts. However, it is not all doom, as democracy takes root, opportunities beckon those investing in new ideas and especially pro-poor targeted enterprises; 90% of African are poor, yet they are consumers. Pro-poor business ideas are bound to pay most, especially where ICT is the driver.’

Putting more emphasis on the role of corruption and government, Fidel Buchi Anyi writes from Lagos, Nigeria, ‘Corruption is the greatest impediment to entrepreneurship in Africa! It is corruption that drives poor and inconsistent government policies, volatile political environment, sit-tight rulership, non-access to project financing, multiple taxation, etc. Remove corruption and the business environment will be cleared up to allow brilliant ideas to thrive. Fair competition and honest productive collaboration can only flourish in an environment where corruption is treated with disdain and trust can grow.’ Oliver Wassmann, from the Technische Universiteit Berlijn, shifts the focus again when he writes about the need for better education. He says, ‘The one and single most important issue in Africa is lack of education. And when I say lack of education, I mean lack of knowledge and lack of good values! Education drives the behaviour of human beings. How often did I meet really motivated people with brilliant ideas who miserably failed to live up to their promises? Pointing the finger to government and corruption from my point of view is too simplistic. Corruption flourishes all over the world, also in countries like the US and Germany, yet they are still prospering.’ Clearly all of these challenges play a role in putting together the right ecosystem businesses need to thrive. But which factor stands out heads above the rest?

Not surprisingly ‘Hard to access finance’ is ranked as the number one factor hindering entrepreneurs today. So why does the community cite this as the number one challenge? Is it because the entrepreneurs have bad ideas unworthy of investment? I don’t buy this as many of the ideas we see on VC4Africa are not only important they are actually essential – serving a basic life need in critical sectors like agriculture, health or housing. I wish I could say the business plans I read in other parts of the world were as relevant! So the ideas don’t seem to be part of the problem to me, even if we need different business models and some creative implementation needed to execute them successfully.

So what does ‘Hard to access capital’ actually mean? Is it hard to find money for businesses? Is this to say there is no/little money available or instead that there is money but for some reason it is hard to move? And in this case is it because the entrepreneur lacks the skills, network, model and circumstance needed to make an investment worthwhile or does the money get stuck because the broader political, economic and social context don’t make sense? The infrastructure doesn’t effectively facilitate investment or the money simply doesn’t see the market developments needed to offer viable exits down the road? Again, all of these pieces play a role.

That said, investment capital is seriously required by thousands if not millions of entrepreneurs building businesses across the continent. And I strongly believe there is always money for a good idea in a growing market. In furthering this discussion I reach out to the community again and ask the same question from a different perspective, ‘What is the hardest part about investing in Africa?’ Share your thoughts and help spread the word.

See some of the other comments made by respondents: