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What can African governments do to support more entrepreneurship?

A recent report by the Organization for Economic Cooperation and Development (OECD) finds that in Israel venture capital is relatively easy to obtain. The country ranked first in a list of venture capital investments as a percentage of GDP. Europe allocates about $7 per citizen, the US $72 and Israel something closer to $142. This is good news for entrepreneurs in the country and increasingly Israel is recognized as a hotbed for innovation. But much of this was not possible without support from the government.

The Venture Capital industry in Israel is rooted in the Yozma program, or ‘Initiative’ in Hebrew, started in 1993. Under this program the government offered attractive tax incentives to any foreign investors and if needed matched the VC investments with government funds. Now there are about 70 active funds in Israel and some 220 international funds having operations in the country. Between 1991 and 2000, Israel’s annual venture capital investments rose from $58 million to $3.3 billion. Companies launched by Israeli venture funds rose from 100 to 800. According to the Invest in Israel website the country has had to take a step back due to the international financial crisis, but the numbers remain impressive. They cite that ‘In 2009, 447 Israeli high-tech companies raised $1.12 billion, 46% below the $2.08 billion raised in 2008, which was the highest amount raised in 7 years, and 36% below 2007 levels.’

Many governments in Africa would dream of similar results. Israel is not perfect, in the same OECD report Israel ranked 29th in terms of the bureaucratic burden facing start-ups, but clearly government support can have a marked impact on entrepreneurship development. So what can African governments do to support more entrepreneurship in their own countries? This was the premise for this weeks poll.

From the results its clear to see there are a number of issues at play. On one hand respondents feel the government needs to support a transition from the informal to the formal sector by protecting entrepreneurs from non-market risks. Take Nigeria as an example where the economy is estimated to be worth $42 billion. One of the largest economies in Africa, this figure doesn’t include the informal sector i.e. black market activity that under some estimates could account for between 40% and 45% of the gross domestic product (GDP). If governments can streamline their services and ensure levels of protection they could see dramatic transfers from the informal to the formal sectors, engaging entrepreneurs and supporting their continued development in the process. There also need to be real incentives in place if government’s expect a response to their efforts.

Moshawa Modise, of UNISA, expands, ‘In Africa, SME Language is still not understood. There are structural issues that need to be addressed such as ensuring that one can register a company within hrs. and having all of your compliance done efficiently i.e. Tax Cert, Book-Keeper/Auditor, CIPRO Cert, etc.’ Expanding on how governments could further incentivise entrepreneurs Moshawa expands, ‘Also, once registered and compliant, governments can refer the new business to a desk where within a day the entrepreneur can refine business docs, work on branding, a website, email, etc. Finally, allocate a mentor to the SME and track down their progress.’ Javan Odhiambo adds, ‘African governments can support more enterprise by creating facilities that can help young Africans get financial backing. Governments should also start businesses incubation centers that will play a major role in anchoring start ups still in infant stages.’

Ensure that the education system arms entrepreneurs with the soft skills they need to succeed and ensuring that financial systems are competitive and that small businesses have access to credit were additional points raised int he survey. Fatou O. Fall, from Dakar, says pointedly, ‘As an entrepreneur, access to credit is my big issue.’ What are your thoughts on the matter? How do you feel African governments can support more entrepreneurship development in their countries?

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