MOST people believe that entrepreneurs in less-developed economies, such as those in Africa and Latin America, only start their own businesses because they have no other options and are desperate to earn a living for themselves and their families. But according to the latest Global Entrepreneurship Monitor (GEM) research, this is not true.
Entrepreneurial opportunities of all types exist in every part of the world, and while opportunities may be diverse in different economic contexts, there are ambitious entrepreneurs everywhere with the aspirations to pursue them.
In Africa’s economies (termed factor-and efficiency-driven economies by the Global Competitiveness index to describe levels of complexity), 69% of entrepreneurs report they are pursuing an opportunity, rather than that they have no choice. They aren’t far behind more complex, innovation-driven economies, such as Europe, Taiwan, Canada, South Korea and the US, at 78%.
The 2015/16 GEM Global Report, featuring data from 62 economies across five world regions, asks entrepreneurs if they set out to improve their situation, either through increased independence or through increased income.
GEM calls them improvement-driven opportunity entrepreneurs.
In Botswana, the country with the lowest proportion of such entrepreneurs, there is on average 1.5 times as many improvement-driven entrepreneurs as there are necessity-driven entrepreneurs. The best performing world economy in this regard is the US, with 3.4 times as many improvement-driven opportunity entrepreneurs as there are necessity-motivated entrepreneurs. In SA the ratio is 2:1.
Of concern is the finding that women are still nearly one-third more likely than men to start businesses out of necessity. In the factor-driven economies of Burkina Faso, Botswana and Senegal, 32% of women are necessity-driven entrepreneurs compared to 24% of men, while in SA (an efficiency-driven economy) the comparison of necessity-based women entrepreneurs to men is 33% to 28%.
The gender gap in innovation-driven economies is narrower — 19% of women start businesses out of necessity, compared to 17% of men.
Another area in which the difference between the innovation and factor-and efficiency-driven economies is visible is in the types of businesses people pursue. Nearly half or more of entrepreneurs in efficiency-driven economies operate wholesale or retail businesses, while in innovation-driven economies, entrepreneurs are drawn more to opportunities in information and communications, financial, professional, health, education and other services industries. Not surprisingly, because they are operating in an economy in which there are more opportunities and better infrastructure, entrepreneurs in innovation-driven economies are also much more likely to be innovative. Given the unique value they offer, the businesses these entrepreneurs start are often more sustainable and likely to have a high economic and social effect.
GEM research suggests this discrepancy could be explained by a lack of advanced education among entrepreneurs found in less developed economies — operating wholesale or retail businesses generally requires lower skill levels and typically has fewer barriers to entry.
...
ANOTHER myth-busting finding of the latest GEM report is that innovation-driven economies, on average, have a higher proportion of nonemployer entrepreneurs — they employ only themselves in their business. At the regional level, Africa has the smallest proportion of nonemployer entrepreneurs on average.
More than two-thirds of entrepreneurs surveyed say they intend to add one or more jobs to their economies, in addition to employing themselves.
This employment data shows the critical importance of entrepreneurs for future employment and economic development, particularly in the factor and efficiency-driven economies, where unemployment is high. By contrast, just 55% of entrepreneurs in innovation-driven economies expect to add one or more jobs to their economy in the next five years.
The reasons for this discrepancy could include that sophisticated technology and communications in innovation-driven economies may allow entrepreneurs to operate on their own, with a virtual network, and that in the less-developed economies, it may be easier to hire people who have fewer job alternatives and where the labour laws are less pedantic.
Many entrepreneurs in less-developed economies cite complicated regulatory systems and bureaucracy as a leading cause of business discontinuance. The problem is particularly severe in SA, where entrepreneurs are four times more likely to exit business due to bureaucracy compared to Botswana, Senegal and Burkina Faso.
While entrepreneurs globally are almost equally optimistic about starting a business to pursue an opportunity, and equally sure they have the skills and attitudes to do so, entrepreneurs in less-developed economies are much less likely to be innovative and much more likely to exit businesses. In factor-driven economies, 8% of entrepreneurs stated they discontinued a business in the past year, 5% in efficiency-driven economies, but only 3% in innovation-driven economies.
The study provides clear guidelines as to what needs to change to provide improved support for entrepreneurs in factor and efficiency-driven economies.
These economies need to get a few fundamentals right if they are to attract increasing numbers of opportunity-driven entrepreneurs and assist in nurturing their start-ups into mature businesses.
The first is to make it easier for new businesses to register and operate by cutting costs and reducing the regulatory burden, as has been done successfully in Chile and the UK. Policies, legislation and bylaws should be subject to regulatory impact assessment before being passed, similar to what the European Union defined as a Think Small First principle.
The innovation capabilities of factor-driven and efficiency-driven economies can be further developed by advancing government or private research laboratories, partnerships between multinationals and universities, and improving the ability to commercialise solutions based on technological innovations.
One of the main reasons cited for exiting a business in Africa is the lack of finance. These economies need urgently to improve mechanisms for moving the funding of smaller businesses away from asset-based criteria to models that are more accessible for entrepreneurs who may not have the collateral required by most banks.
The report shows people younger than 44 are by far the most active in the entrepreneurial space — but first grassroots skills gaps must be tackled by establishing training centres for artisan and information and communications technology skills, and setting up incubators that are easily accessible for young potential entrepreneurs.
...
IT SHOULD include the improvement of information and communications technology infrastructure in areas beyond city borders so entrepreneurs have the cost-effective internet and reliable connectivity that is critical for people to create employment for themselves. Of equal importance is promoting entrepreneurship in high value-added industries. In factor-driven economies, more early-stage businesses start in the retail and services industry, where fewer skills are needed and the barriers to entry are low.
Policy makers and practitioners should assess the environment and encourage entrepreneurs to go into industries that match the strengths of an economy or region, and tackle the future direction of manufacturing and other high-growth industries. Entrepreneurship continues to grow in credibility globally as an economic force for attending to social and economic challenges. With more than two-thirds of adults around the world expressing positive entrepreneurial intentions, it represents a large untapped source for development. If more governments support entrepreneurs, an entrepreneurial world can be built that will be more robust and sustainable for all.
• Herrington is the executive director of GEM
Most entrepreneurs in Africa start businesses because they are pursuing opportunities, as opposed to doing so it out of necessity, the writer says. Picture: MARIANNE SCHWANKHART
MOST people believe that entrepreneurs in less-developed economies, such as those in Africa and Latin America, only start their own businesses because they have no other options and are desperate to earn a living for themselves and their families. But according to the latest Global Entrepreneurship Monitor (GEM) research, this is not true.
Entrepreneurial opportunities of all types exist in every part of the world, and while opportunities may be diverse in different economic contexts, there are ambitious entrepreneurs everywhere with the aspirations to pursue them.
In Africa’s economies (termed factor-and efficiency-driven economies by the Global Competitiveness index to describe levels of complexity), 69% of entrepreneurs report they are pursuing an opportunity, rather than that they have no choice. They aren’t far behind more complex, innovation-driven economies, such as Europe, Taiwan, Canada, South Korea and the US, at 78%.
The 2015/16 GEM Global Report, featuring data from 62 economies across five world regions, asks entrepreneurs if they set out to improve their situation, either through increased independence or through increased income.
GEM calls them improvement-driven opportunity entrepreneurs.
In Botswana, the country with the lowest proportion of such entrepreneurs, there is on average 1.5 times as many improvement-driven entrepreneurs as there are necessity-driven entrepreneurs. The best performing world economy in this regard is the US, with 3.4 times as many improvement-driven opportunity entrepreneurs as there are necessity-motivated entrepreneurs. In SA the ratio is 2:1.
Of concern is the finding that women are still nearly one-third more likely than men to start businesses out of necessity. In the factor-driven economies of Burkina Faso, Botswana and Senegal, 32% of women are necessity-driven entrepreneurs compared to 24% of men, while in SA (an efficiency-driven economy) the comparison of necessity-based women entrepreneurs to men is 33% to 28%.
The gender gap in innovation-driven economies is narrower — 19% of women start businesses out of necessity, compared to 17% of men.
Another area in which the difference between the innovation and factor-and efficiency-driven economies is visible is in the types of businesses people pursue. Nearly half or more of entrepreneurs in efficiency-driven economies operate wholesale or retail businesses, while in innovation-driven economies, entrepreneurs are drawn more to opportunities in information and communications, financial, professional, health, education and other services industries. Not surprisingly, because they are operating in an economy in which there are more opportunities and better infrastructure, entrepreneurs in innovation-driven economies are also much more likely to be innovative. Given the unique value they offer, the businesses these entrepreneurs start are often more sustainable and likely to have a high economic and social effect.
GEM research suggests this discrepancy could be explained by a lack of advanced education among entrepreneurs found in less developed economies — operating wholesale or retail businesses generally requires lower skill levels and typically has fewer barriers to entry.
...
ANOTHER myth-busting finding of the latest GEM report is that innovation-driven economies, on average, have a higher proportion of nonemployer entrepreneurs — they employ only themselves in their business. At the regional level, Africa has the smallest proportion of nonemployer entrepreneurs on average.
More than two-thirds of entrepreneurs surveyed say they intend to add one or more jobs to their economies, in addition to employing themselves.
This employment data shows the critical importance of entrepreneurs for future employment and economic development, particularly in the factor and efficiency-driven economies, where unemployment is high. By contrast, just 55% of entrepreneurs in innovation-driven economies expect to add one or more jobs to their economy in the next five years.
The reasons for this discrepancy could include that sophisticated technology and communications in innovation-driven economies may allow entrepreneurs to operate on their own, with a virtual network, and that in the less-developed economies, it may be easier to hire people who have fewer job alternatives and where the labour laws are less pedantic.
Many entrepreneurs in less-developed economies cite complicated regulatory systems and bureaucracy as a leading cause of business discontinuance. The problem is particularly severe in SA, where entrepreneurs are four times more likely to exit business due to bureaucracy compared to Botswana, Senegal and Burkina Faso.
While entrepreneurs globally are almost equally optimistic about starting a business to pursue an opportunity, and equally sure they have the skills and attitudes to do so, entrepreneurs in less-developed economies are much less likely to be innovative and much more likely to exit businesses. In factor-driven economies, 8% of entrepreneurs stated they discontinued a business in the past year, 5% in efficiency-driven economies, but only 3% in innovation-driven economies.
The study provides clear guidelines as to what needs to change to provide improved support for entrepreneurs in factor and efficiency-driven economies.
These economies need to get a few fundamentals right if they are to attract increasing numbers of opportunity-driven entrepreneurs and assist in nurturing their start-ups into mature businesses.
The first is to make it easier for new businesses to register and operate by cutting costs and reducing the regulatory burden, as has been done successfully in Chile and the UK. Policies, legislation and bylaws should be subject to regulatory impact assessment before being passed, similar to what the European Union defined as a Think Small First principle.
The innovation capabilities of factor-driven and efficiency-driven economies can be further developed by advancing government or private research laboratories, partnerships between multinationals and universities, and improving the ability to commercialise solutions based on technological innovations.
One of the main reasons cited for exiting a business in Africa is the lack of finance. These economies need urgently to improve mechanisms for moving the funding of smaller businesses away from asset-based criteria to models that are more accessible for entrepreneurs who may not have the collateral required by most banks.
The report shows people younger than 44 are by far the most active in the entrepreneurial space — but first grassroots skills gaps must be tackled by establishing training centres for artisan and information and communications technology skills, and setting up incubators that are easily accessible for young potential entrepreneurs.
...
IT SHOULD include the improvement of information and communications technology infrastructure in areas beyond city borders so entrepreneurs have the cost-effective internet and reliable connectivity that is critical for people to create employment for themselves. Of equal importance is promoting entrepreneurship in high value-added industries. In factor-driven economies, more early-stage businesses start in the retail and services industry, where fewer skills are needed and the barriers to entry are low.
Policy makers and practitioners should assess the environment and encourage entrepreneurs to go into industries that match the strengths of an economy or region, and tackle the future direction of manufacturing and other high-growth industries. Entrepreneurship continues to grow in credibility globally as an economic force for attending to social and economic challenges. With more than two-thirds of adults around the world expressing positive entrepreneurial intentions, it represents a large untapped source for development. If more governments support entrepreneurs, an entrepreneurial world can be built that will be more robust and sustainable for all.
• Herrington is the executive director of GEM
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