While entrepreneurship is thriving in many parts of the developing world, starting a business in Africa remains an uphill battle. Founders face a lack of capital, an abundance of bureaucracy, and often have no one to turn to for advice.
Start-ups in Africa raised just $556m from investors in 2017 (compared to $7bn raised in India) and that the number of incubators and accelerators of start-ups has grown to more than 440 in 2018, compared to 314 two years ago, according to a just-released study by the IFC. The study also found that five African cities, Accra, Cairo, Cape Town, Lagos, and Nairobi, attract 84% of the funds, even though they account for 22% of the continent’s start-ups. Start-ups in other cities are simply missing out in financing opportunities.
So as 100 of Africa’s top entrepreneurs gather this weekend in Sharm El Sheikh, Egypt, the question for them, governments, and finance institutions is how do we take entrepreneurship in the continent to a much higher level?
Part of the responsibility rests with governments. Officials need to support the development of what the IFC study calls ‘entrepreneurial societies,’ or places that encourage risk-taking and do not punish failure. At a practical level, that means reducing bureaucracy that would make it easier for start-ups to get off the ground. It means reforming bankruptcy laws, so that if entrepreneurs fail, they are not saddled with debt their entire lives.
Governments and the private sector also can bolster much-needed early-stage financing by creating public-private funds,and developing new instruments to de-risk investment to crowd in new investors. Governments can help by investing in technology infrastructure, such as high-speed internet, and by encouraging competition in industries, like telecoms and transport, which have traditionally been dominated by a handful of firms.
Importantly, to take entrepreneurship to a higher level, we also must make sure half of the population has the right opportunities. We must find ways to encourage more women to start businesses. According to last year’s Global Entrepreneurship Monitor on women, over 75%of women in Sub-Saharan Africa would not be deterred from starting a business by the prospect of failure, compared to 57%of women in Europe, Asia, and the MENA region. This shows that many more women in Africa would be willing to take the risk of starting of a business, but that many factors, such as discriminatory laws or culture practices, discourage them.
Egypt is a good example of a country that is working to expand entrepreneurship. Officials recently passed the country’s first-ever entrepreneurship law, which makes it easier for founders to launch a business. It also has built a network of offices where aspiring entrepreneurs can get free advice.
Of course, fostering entrepreneurship is not just a state responsibility. Seasoned entrepreneurs need to give back to the start-up community by acting as mentors and investors. A recent study by Endeavor, a global entrepreneurship movement, found that top performing entrepreneurs were much more likely to receive knowledge, mentorship, or investment coming from other, more seasoned, entrepreneurs who have led a company to scale.
Fast-growing, innovative companies create jobs. They also provide solutions to long-standing development challenges, helping Africans power their homes, open savings accounts, and access good healthcare.
Kenya’s M-Kopa is a good example of a start-up making a difference. The company builds pint-sized solar power systems designed for residential use. In a country where 25 million people are not connected to the power grid, it is providing light and internet to some 600,000 homes.
This week we will celebrate the young entrepreneurs gathering in Sharm El Sheikh. But the continent is filled with countless other talented founders whose ideas have yet to take off. If we can encourage more of Africa’s best and brightest to launch start-ups, and if we can support them properly, we will have many more great business successes. These entrepreneurs will create markets,jobs, and opportunities that the people of Africa urgently need.
Philippe Le Houérou
CEO of IFC, part of the World Bank Group,the largest development institution in the world focusing on private sector development