Report highlights challenges for African businesses

April 22, 2013
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Financiers argue that many of the new ventures simply cannot be funded, according to Accelerating Entrepreneurship in Africa report compiled by Omidyar Network Africa/FILE
Financiers argue that many of the new ventures simply cannot be funded, according to Accelerating Entrepreneurship in Africa report compiled by Omidyar Network Africa/FILE
NAIROBI, Kenya, Apr 22 – A new research into entrepreneurship in Africa has revealed that the greatest challenge facing businesses is the state of entrepreneurial assets which include financing, skills, talent and infrastructure.

Financiers argue that many of the new ventures simply cannot be funded, according to Accelerating Entrepreneurship in Africa report compiled by Omidyar Network Africa.

“Financiers note a lack of fundable business plans, due to the quality and feasibility of the business idea and the commitment of the entrepreneur and his or her team,” the report states.

Of the six countries surveyed, Kenya seems to fare the best in terms of capital supply – with only 52 percent of Kenyans seeing this as a challenge.

The main sources of financing are personal and family loans (45pc), private equity (19pc), bank debt (18pc), government funding (5pc), venture capital (5pc), angel seed (4pc) and other (4pc). “Other” funding sources include corporate funding, lease/receivables financing or stock options.

The report also found out that in some cases, banks require 150 percent of the borrowed amount in collateral.

However government lending, could be a great alternative though the bureaucracy and nepotism in the institutions was reported by some respondents.

The report says that it’s important to have experienced managerial talent to complement technical talent.

The research advices that management and other entrepreneurial skills should be fostered in schools, pointing out that entrepreneurs in Africa require training and education to allow them to succeed in starting or growing a business, more time should be devoted to entrepreneurship at primary and secondary level.

The report argues that the poor state of infrastructure across sub-Saharan Africa is a significant obstacle to the growth of entrepreneurial enterprises; it severely affects entrepreneurs’ costs, market access and efficiencies.

Respondents to the survey pinpoint the lack of access to constant electrical power as the biggest challenge in terms of infrastructure. Unreliable electricity supply, poor quality and limited breadth of road and rail networks, and poor communications infrastructure are all highlighted as having a significant impact on the cost of doing business.

Additional costs, such as purchasing generators or grading rural roads, 52 percent of respondents in Tanzania believe that new and growing firms cannot afford the costs of physical infrastructure.

The report recommended that countries should deploy and upgrade infrastructure first in selected productive areas where there are substantial business activity and strategically important local industries.

Infrastructure deployment requires significant capital investments that should be made where the prospects of good economic activity and returns exist.

It also recommends the favouring of public-private partnerships in the execution of infrastructure projects.

Public agencies in Africa are often affected by capacity and resource constraints and both the culture of urgency and types of skills that tend to reside in the private sector play a pivotal role in the completion of infrastructure projects.

Last year the Kenyan government got into development plans with a total cost of US$22 billion that include significant improvements to roads, railways, seaports, airports, water, sanitation and telecommunications.

The new government is also keen in focusing on these in the hope of attracting, accelerating and retaining investors who often complain its dilapidated facilities increase the cost of doing business, rendering Kenya’s products uncompetitive in the global market.

The study indicates that the culture of entrepreneurship is growing in sub-Saharan Africa, with indicators related to entrepreneurial motivations at least on par with or higher than global peers. However the report also indicates that the business landscape in sub-Saharan Africa provides a number of challenges that prospective entrepreneur must transcend.

Omidyar Network Africa Managing Director Malik Fal said that despite the positive economic news and encouraging trends that have emerged from Africa over the past decade, the troubling reality remains that the everyday livelihoods of Africans have not kept pace with macroeconomic growth, and per capita GDP levels on the continent persistently lag behind the rest of the world.

“We submit that entrepreneurship can address this stubborn income gap in Africa if – and only if – it is able to evolve beyond its current state of necessity-based informality into one that is vibrant and robust enough to promote sustained economic growth and generate long-term, viable livelihoods across the continent,” said Fal on the report.

The first phase of the initiative commenced with a survey of 582 entrepreneurs in six Sub-Saharan African countries: Ethiopia, Ghana, Kenya, Nigeria, South Africa and Tanzania. That survey, in turn, was augmented by 72 in-depth interviews and then benchmarked against 19 global peers.

The survey focused on four critical aspects of entrepreneurial environments: Entrepreneurship assets: Financing, skills and talent, and infrastructure. Business support: Government programs and incubation. Policy accelerators: Legislation and administrative burdens. Motivations and mindset: Legitimacy, attitudes, and culture.

The second phase of the initiative brought together business, government and thought leaders to analyse the survey findings, as well as more closely examine the state of entrepreneurship in Africa. The sessions were held in October 2012 at the inaugural Entrepreneurship in Africa Summit in Accra, Ghana.

The summit was convened by Omidyar Network in collaboration with the African Leadership Network and the Monitor Group and drew more than 300 relevant leaders from both private and public sectors to participate in a solutions-driven dialogue on fostering high-impact entrepreneurship across the continent.

The third and final phase, of the initiative includes the recommended actions needed to accelerate entrepreneurship on the continent.

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