Are Africa’s entrepreneurs an answer to the jobs challenge?

Africa is the world’s second-fastest-growing region. Poverty is falling, and around 90 million of its households have joined the world’s consuming classes—an increase of 31 million in just over a decade. But a new McKinsey Global Institute report, Africa at work: Job creation and inclusive growth, shows that the continent must create wage-paying jobs more quickly if it is to sustain these successes and ensure that growth benefits the majority of its people.

A growing body of research shows a positive link between entrepreneurship and economic development. Entrepreneurs are the change agents that spur new cycles of innovation, challenge the status quo, and fuel the growth & development within existing sectors and new fields of business. As policy makers recognize entrepreneurship as an economic catalyst, and at the same time feel a growing pressure to create a growing number of jobs, a growing conversation starts to look at how we can better support different types of entrepreneurs with different needs.

Africa has a higher share of entrepreneurs than other emerging markets, including BRIC economies. But the study makes an interesting distinction we are also making here at VC4Africa. There are different kinds of entrepreneurs, and indeed, they are not all the same. You have entrepreneurship out of necessity and you have entrepreneurs who are working to take on a business  opportunity.

Most entrepreneurs on the continent are “necessity entrepreneurs,” otherwise individuals selling their products on the side of the street in the effort to make a daily living. The report argues, ‘people forced to turn to these activities make a negligible contribution to GDP and have minimal productivity.’ And although these individuals make important contributions to their families and direct community, often times they are part of the informal economy. They pay little to no taxes and are not a great source of new jobs. So the real question is to better understand what share of Africa’s micro businesses are run by “opportunity entrepreneurs” i.e. the type of entrepreneur that looks to scale and grow their business? This segment should be given special attention if we expect them to help grow the economy in real GDP terms and create the jobs needed to activate a growing population of young people.

The report explains that Africa’s necessity entrepreneurs are those of vulnerable employment, and the focus for policy makers should be on helping these individuals gain the relevant skills to find stable jobs in the future. On the contrary, the hurdles in the way of Africa’s opportunity entrepreneurs are similar to those faced by all businesses: access to finance, shortcomings in Africa’s infrastructure, and cumbersome regulations and corruption in the business environment.

Concluding, the report argues African countries should continue to streamline the business environment and support platforms that support entrepreneurs working to grow and scale new business. At VC4Africa we are in full support of these recommendations.