6 Trends Shaping Entrepreneurship in Africa in 2018
The nonprofit Street Business School has been teaching Ugandan women how to launch their own businesses for more than a decade. Its programming has already reached more than 60,000 people, who increased their incomes by an average of 211 percent by starting small, locally-based businesses. From this vantage point, SBS and its team are keenly aware of the economic, social and developmental trends that are shaping entrepreneurship in Africa today. Here are six to watch as we move through the second half of 2018.
1. Entrepreneurship in Africa is growing in the wake of an uncertain future.
The employment landscape is changing faster now than ever before. By one popular estimate, 65 percent of today’s primary-school students will ultimately work in careers that don’t even exist yet. “Entrepreneurs are uniquely equipped to navigate an economic environment so fraught with disruption,” says Devin Hibbard, co-founder and CEO of Street Business School.
“Entrepreneurship is a tool to help people stay adaptable,” she explains. “The world changes rapidly, and entrepreneurs are better able to notice changing trends and adapt to them than people who are in wage jobs. For industry workers, when the industry goes away, they’re in trouble.”
In Africa particularly, data shows that the existing employment landscape is not enough to provide a job for everyone who needs it: Although Africa will create 54 million new, stable wage-paying jobs by 2022, it will not be enough to absorb the 122 million new entrants to the labor force over the same period, according to a recent study from McKinsey & Co.
“Entrepreneurship is the best solution—and in some ways, it’s the only solution,” Hibbard argues. Data shows that millions across the continent are responding in kind: 22 percent of Africa’s working-age population are starting new businesses, which is the highest rate of any region in the world, according to the African Development Bank Group.
2. A rising middle class creates big business in meeting local needs.
Africa now has the fastest-growing middle class in the world. Consumer spending across the continent amounted to $1.4 trillion in 2015, according to data from McKinsey & Co. By 2025, 65 percent of African households will be in the “discretionary spending” income bracket—defined as earning more than $5,000 a year. “Consequently, the profile of goods and services that Africans purchase will shift, from basic necessities toward more discretionary products,” the consultancy predicts.
A growing number of today’s African entrepreneurs are already sensing this shift and stepping up to meet local needs—while making a profit, says Hibbard of SBS. “Most of our graduates are not starting businesses that nobody ever thought of before. We encourage them to look at the local economy and the local market—and they, of course, are the experts on what their community wants.”
SBS includes market research as part of its eight-module business training for African women living in extreme poverty. Hibbard shares one example that demonstrates the power of filling gaps in the local marketplace:
“A young woman lived in an area with lots of university students, and though there were lots of clothing stores, few catered to university-aged women. She specialized in dresses and cute outfits for girls in university, and she hit a gold mine. She went from having a tiny streetside presence to renting a store, buying mannequins and creating displays. She continues to have an incredibly vibrant business, and that has to do with understanding where the niche market is and where the opportunity is.”
3. The end of “brain drain” foreshadows a new generation of entrepreneurs.
“The most exciting thing that’s going on in East Africa right now is the entrepreneurial spirit among young people,” Hibbard says. “My personal indicator of global development is to look at how many young Africans who have been educated abroad are choosing to return to their home country to start their careers. People who received their MBAs in Texas or studied at Oxford are coming back to Nairobi or Kampala. They’re saying, ‘We’re going to change our country, and we’re going to do it through business.’”
Hibbard’s observations are more than anecdotal—they’re backed up by increasingly robust research that indicates Africa’s “brain drain” may soon be a thing of the past. Nearly 70 percent of African students pursuing MBAs at the top 10 U.S. and European schools plan to return home after graduation, according to a recent survey by Jacana Partners, a pan-African private equity firm, as cited by Quartz.
“These survey findings provide a welcome indication that the majority of talented young Africans from among the educated diaspora will be returning to Africa post-graduation—and more importantly, they will be starting their own businesses,” Simon Merchant, CEO of Jacana Partners, told the How We Made It In Africa blog.
4. More education can break the cycle of generational poverty, but we’re not there yet.
“Ninety-eight percent of women who graduate from SBS are able to put their children through school. That is top priority for them,” Hibbard says. Empowered as business owners, women formerly living in poverty are able to meet their basic needs and raise capable, confident children who will break the cycle of generational poverty, she explains.
“To grow up and know your schooling is being paid for because your mom runs a business creates a totally different mindset than growing up in a family that struggled every day. As we see the next generation come of age, we’re really going to see more changes.”
The proportion of children finishing primary school in sub-Saharan Africa has rapidly increased, according to the World Economic Forum, but data shows more work is needed in order to unlock the potential in the next generation of Africa’s workforce. Of all regions, sub-Saharan Africa still has the highest rates of education exclusion, according to the U.N., leading to an adult literacy rate that’s nearly 25 percent below the global average.
Though expanding access to education in sub-Saharan Africa and across the continent remains a challenge, getting it right could set off an economic sea change: According to the OECD, if all 15-year-olds achieved a basic level of education, Ghana could increase its economic growth by over 3,800 percent and South Africa by more than 2,600 percent.
5. African women are leading, but they still earn less than men.
African women hold two-thirds of all jobs in the non-agricultural informal sector—translation: entrepreneurs or those working for non-formal, locally-based small businesses—according to research from the United Nations. Yet they make an average 70 cents on the dollar compared to men.
The U.N. estimates that such gender discrepancies cost sub-Saharan Africa up to $105 billion each year, or 6 percent of its GDP, which means there’s a lot to gain by empowering and funding women entrepreneurs on the same level as their male counterparts.
And though African women continue to face pay disparities, studies indicate they are persevering against all odds: Uganda, the East African country where SBS got its start, now has the highest percentage of women business owners in the world, with the Southern nation of Botswana following closely behind. Across all of sub-Saharan Africa, 25.9 percent of the female adult population is engaged in early-stage entrepreneurial activity.
“In some ways, we think of the women we work with as necessity entrepreneurs,” says Hibbard of SBS. “They have seen that there are few opportunities available to them, and they’ve learned that they’re going to have to do it themselves.”
6. Outside investment there—but more work is needed to reach small-scale entrepreneurs.
“Africa has the highest return on foreign direct investment of anywhere in the world, and investors worldwide are scrambling to invest in African companies,” Hibbard explains. Indeed, research cited by UHY—a leading network of independent accounting and consulting firms—indicates that the rate of return on foreign investment is higher in Africa than in any other developing region.
Foreign direct investment in the region hit a record $60 billion in 2015, five times its 2000 level, according to the World Bank. Though falling oil prices caused a dip in foreign investment last year, “the beginnings of a commodity price recovery” could “encourage stronger [investment] flows to Africa in 2018,” James Zhan director of the Investment and Enterprise division at the U.N. Conference on Trade and Development, said in a statement in June.
As Hibbard puts it, this generation of Africans are saying, “We don’t need your aid. Come invest in us.” But she also notes a discrepancy in the kind of enterprises that receive funding and focus. “There’s a lot of investment in job creation to small- and medium-sized businesses or SMEs, but that alone won’t serve the majority of people entering the world force. We often miss the focus and funding of micro-entrepreneurship in Africa,” she explains.
Up to 60 percent of 18- to 34-year-old Africans who took part in a joint study by the Global Entrepreneurship Monitor and Youth Business International said they were optimistic about the availability of good business opportunities. Even further, these respondents believed they had the skills and knowledge to start a business. Yet only around 23 percent of micro-enterprises in Africa have access to formal financing, compared to 46 percent of enterprises in non-African developing countries—meaning the global community has far more work to do.
“If you go back to the McKinsey statistic, you need to create more than 50 million more jobs. That is going to be very hard to do,” Hibbard says. “We think Street Business School is in a position to fill that gap and help those small business people who are not getting large foreign investment to get into business and support their families.”
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