Africa must harness power of entrepreneurship for industrialization, say ministers

Somachi Chris-Asoluka (center left), head of policy at the Tony Elumelu Foundation and Dorothy Githae (center right), CEO of 360 Degrees International during the 17th OECD Africa Forum in Paris, France. Photo by: 360 Degrees International Twitter

PARIS — Strengthening local markets and supporting African businesses and entrepreneurs can be a “lever for accelerating the industrialization of Africa” and help nations capitalize on the “demographic dividend” of the explosive growth of its youth population, according to ministers and experts at the Organisation for Economic Co-operation and Development’s 17th annual Africa Forum.

Despite achieving impressive economic growth in recent years — Africa’s gross domestic product grew by more than 5 percent every year between 2001 and 2014 — poverty remains high, income inequality is rising, and declining commodity prices have exposed weaknesses in many African economies, slowing growth in recent years.

With an additional 30 million young people set to enter the African workforce every year between now and 2030, there is an urgent need to create jobs on a grand scale, according to the Africa Economic Outlook 2017, produced jointly by the OECD, the African Development Bank, and United Nations Development Programme. In response, many African countries are embracing industrialization with renewed vigor — in 2017, at least 26 nations have industrialization strategies — as a means of creating the kinds of labor-intensive industries that can fill the looming employment crisis.  

However, since the continent’s past efforts to industrialize, which tended to focus on manufacturing, have been largely unsuccessful, fresh thinking and new “industrialization paradigms” must be applied, the African Economic Outlook states.

Considering Africa has the highest entrepreneurship rate in the world, at 22 percent of the working age population, and small and medium enterprises provide more jobs in the formal economy in sub-Saharan Africa than any other industry, harnessing the potential of these entrepreneurs could play a crucial part in any new industrialization strategy. And on Wednesday, a high-level group of ministers, financiers and experts from Africa and Europe gathered in Paris, France to discuss this.

Guinean Prime Minister Mamady Youla was among those present and said during the opening session: “Entrepreneurship can be a lever for accelerating the industrialization of Africa … but we need to change the paradigms,” he said, adding that “Africa has missed the first three Industrial Revolutions; it cannot afford to miss the Fourth.”

A new paradigm

According to Mario Pezzini, director of the OECD Development Centre, traditional economic policies based on the principles of privatization, liberalization and deregulation will not necessarily help African countries in their quest to industrialize. Instead, he called for an increased focus on strengthening “local economies” and supporting African businesses, both small and large. Policies and investments that focus on building on what is already there will create more jobs and are more feasible than strategies that seek to attract more external investment or tap global markets, he said.

“How can we further improve already existing small firms … created by Africans in Africa?” Pezzini said.

This idea of playing to Africa’s strengths was echoed by a number of other speakers including Somachi Chris-Asoluka, head of policy at the Tony Elumelu Foundation, who called on countries to diversify away from an over-reliance on commodities and natural resources, which are subject to price shocks.

“Let’s move the mindset away from resources and instead focus on human resources,” Chris-Asoluka said, adding that, “Africa [is] sitting on a demographic bomb so we need to at least split the focus onto young people with business ideas …[and] support them, and then they will in turn create jobs.”

Daniel Kablan Duncan, vice-president of Côte d’Ivoire, seemed to agree when he described human capital as his country’s “main wealth that we can focus on.”

Two types of entrepreneur

Ghana’s minister of business development, Ibrahim Awal Mohammed, whose department was only created nine months ago, said small businesses, which are often overlooked, are the engines of growth and job creation in many African nations. In Ghana, 90 percent of all businesses are classified as SMEs, but they contribute about 70 percent of the country’s GDP, he said.

However, while the minister described Ghana as an “entrepreneurial country,” the vast majority of these entrepreneurs are “need entrepreneurs” — those who set up businesses because they have no alternative. Only 10 percent of Ghana’s businesses are run by “intentional entrepreneurs” who will proactively “look for and exploit opportunities to expand,” Awal Mohammed explained.

Businesses run by need entrepreneurs rarely scale, the minister said, because they run into obstacles including high taxes, a lack of basic infrastructure such as electricity, and poor access to capital. But it is these businesses that will drive employment and growth.

“We cannot let them stay small,” he said, adding “we need to give them the skills, education, business management training, access to capital and an enabling environment.”

He outlined initiatives the government is putting in place to support these “need entrepreneurs,” including a $100 million fund to support start-ups.

Rural infrastructure

Agri-business was raised as another important African area of comparative advantage and one that should not be forgotten, a number of speakers said.

According to Jean-Joseph Boillot, economic advisor on emerging countries at the CEPII research institute in France, ecological farming has the potential to create mass employment and address the continent’s biggest challenge. This is confirmed by research that shows that in sub-Saharan Africa, agricultural growth is 11 times more effective at reducing poverty than other sectors. Yet despite this evidence, the agricultural sector has been neglected to such an extent that Africa has switched from being an exporter of agricultural products in the 1960s to a net importer.

Dorothy Githae, who supports women and youth entrepreneurs in Kenya through her social enterprise 360 Degrees International, said some of her entrepreneurs had already seized this opportunity and were transporting fresh fruit and vegetables from Kenya to sell in Nigeria, which currently imports large quantities of produce from abroad.

Skills and education

Another theme that recurred throughout the forum was the need for greater education and training, especially around skills, which is especially important in today’s changing global economy where technological developments and automation are replacing many low-skilled jobs.

In Ghana, the Ministry of Business Development is also working with the Education Ministry to devise a curriculum that emphasizes entrepreneurship from an early age, Awal Mohammed said. “We need to teach business skills from the primary school level to make them see themselves as entrepreneurs, not job seekers,” he said. In September, Ghana’s new President, Nana Akufo-Addo, announced a new policy to offer free secondary education to all students.

Groups such as 360 Degrees International work with women and youth entrepreneurs to help them succeed through teaching business development and digital marketing skills, for example.

Integration of trade networks

Many speakers talked about integration as the key to growth and industrialization but currently trade between African nations stands at less than 10 percent. Trade is restricted by legal and illegal tariffs, which lead to higher costs as well as long delays at border crossings, while the movement of people is restricted by visa regulations, as well as linguistic and cultural obstacles.

The African Union has prioritized the issue in the past but with little to show for it, speakers said.  However, earlier this year President Paul Kagame of Rwanda published a formal review of the African Union, proposing recommendations for reform. Victor Harrison, commissioner for Economic Affairs at the African Union, referred to it as a “turning point.” It is time to act to create a “common African market for trade and goods,” he said.

However, Harrison also admitted that the implementation of such a market would be very difficult. “It is not easy because there exist different realities in Africa’s 54 member states,” he said.  Furthermore, countries are afraid of losing their sovereignty and domestic markets.

Ghana’s business minister said that low levels of intra-African trade were “not acceptable” and called on African leaders to “sit down and know that the best way for them to grow is to integrate and trade.”

“The only way we can have inclusive growth and reduce poverty is for leaders to pursue policy measures which benefit Africans and leave their differences behind … remove obstacles, become integrated and support young people,” he said.

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About the author

  • Sophie Edwards

    Sophie Edwards is a Reporter for Devex based in London covering global development news including global education, water and sanitation, innovative financing, the environment along with other topics. She has previously worked for NGOs, the World Bank and spent a number of years as a journalist for a regional newspaper in the U.K. She has an MA from the Institute of Development Studies and a BA from Cambridge University.