The Roll of Small Business in Africa


Poverty, growing unemployment and increasing inequality remains one of the biggest challenges South Africa currently has to deal with. According to Minister Lindiwe Zulu, this triple challenge still largely bears a black, rural and women face and is a challenge that requires bold action.

Government has identified entrepreneurship and the development of the SMME sector as a key driver to stimulate economic growth and social development. The National Development Plan (NDP) blueprint for social and economic growth sets ambitious growth targets that include (i) 90% employment created by SMMEs by 2030 and (ii) annual economic growth of 5.4% over the next 15 years.

Despite the SMME sector being responsible for approximately 60% of employment, various factors which include inability to create a business environment conducive for SMME development and support, lack of culture of entrepreneurship, skills deficit and access to information, have been identified as having a negative effect on the growth of this sector. Other factors impacting on the growth of this sector have been identified the exceptionally high failure rate of start-up estimate to be 70%, one of the highest failure rates globally; limited adult involvement in SMME estimated to be 10% compared to 17% in Brazil and only 2.9% adult operated SMMEs older than 3 years compared to 15% in Brazil.

The AHi believes that the magnitude of the triple challenge is of such a nature that government alone cannot address it. WE regard education/training as a core priority of both government and the private sector (the AHI representing the latter) to ensure capacities are continuously developed to attain required economic development and social progress. The AHi is committed to provide solid entrepreneurship education/training programs that can help prepare current and future generations of entrepreneurs.

President Barack Obama, on a recent visit to Africa said: “Africa is on the move. People are being lifted out of poverty, incomes are up [and] the middle class is growing,”

The narrative of AFRICA is changing. According to UN development chief for Africa, speaking at the International Conference on the Emergence of Africa, earlier this year Africa has recorded impressive economic growth over the last decade.

Africa’s growth by region, 2013-16

2013 2014 (e) 2015 (p) 2016 (p)
Africa 3.5 3.9 4.5 5.0
Central Africa 4.1 5.6 5.5 5.8
East Africa 4.7 7.1 5.6 6.7
North Africa 1.6 1.7 4.5 4.4
Southern Africa 3.6 2.7 3.1 3.5
West Africa 5.7 6.0 5.0 6.1
Memorandum items:
Africa excl. Libya 4.0 4.3 4.3 5.0
Sub-Saharan Africa (SSA) 4.7 5.2 4.6 5.4
SSA excl. South Africa 5.4 6.2 5.2 6.2

Note: (e) estimates/ (p) projections

Source: Statistics Department, African Development BankThis view is echoed by Helen Clark (United Nations Development Programme) who reckoned that there are many reasons to be optimistic about Africa. She is of the opinion that Steadily increasing revenues have created more opportunities to transform economies and societies, clearing the way for an emergent Africa. South Africa has been ranked as the leading emerging economy in Africa and the only country on the continent to be ranked in the top 15 worldwide. (Emerging Markets Opportunity Index compiled by international advisory firm Grant Thornton).

The term emergent has become a buzzword among international donors and African politicians who take it to translate into a fairer distribution of wealth and other measures that benefit society at large. It has as goal not only an increase in GDP (gross domestic product) but also seeks greater human health and happiness so that all Africans can reach their full potential and participate fully in their respective societies. The UN envisaged that by 2050 Africa can achieve emergent status implying that its GDP can triple meaning that 1.4 billion Africans can join the middle class.

More than 30 African countries have included the objective of reaching emergent or emerging country status in their national development strategies. This is in line with Agenda 63 of the AU that essentially is a roadmap for Africa’s socio-economic transformation for the next 50 years. Chad and Togo for example aim to achieve emergent status by 2030, while Senegal is looking at 2035.
Ivory Coast, the world’s leading cocoa producer, with its annual growth rate of 9%, aims for emergent status by 2020.

A comparison of a group of eight emerging economies (Brazil, Chile, Colombia, Malaysia, India, Russia, Georgia and South Africa), South Africa has the highest business failure rate. According to the Global Entrepreneur Monitor (GEM) 2014 report the percentage of adult South Africans involved in entrepreneurial activity has dropped by 34% since 2013. The percentage of adults in South Africa involved start-ups fell to 6.97% last year from a 13-year high of 10.6% in 2013.

Of these eight emerging economies four types of countries emerged according to an analysis conducted by Small Business Insight:

  • Good going: High startup rate and average number of entrepreneurs failing.
  • Good pipeline: High startup rate, but still way too many failing fast.
    (Chile and Colombia)
  • Some worry: Low number of adults starting up, but failure rate not sky high.
    (Malaysia, India, Georgia and Russia)
  • Most worrying: Low startup rate and high number still failing.
    (South Africa)

It is against this background that I wish to look at entrepreneurship as a vehicle for economic and social development.

Entrepreneurship offers a positive alternative to the ideologies of violence and division that can often fill the void when young people don’t see a future for themselves,” the president said.

More than half the global population is below thirty years. Of this group unemployment in certain countries is as high as 35%. We have a duty to prevent terrorist organisations and extremists to exploit these youngsters who many times don’t see a future for themselves. Poverty alone does not cause terrorism or sectarian violence, but investments in youth entrepreneurship and education are some of our best antidotes that we have to that kind of disorder.

It is a fact that entrepreneurial activity has a key role to play in developing Africa as emerging economy. However, the level or degree of economic growth emanating from entrepreneurship differs from country to country/ region-region and town-town. Entrepreneurs with low levels of education, limited or no resources and social capital are mostly involved in low productivity activities. They are mostly the informal-, lifestyle and survivalist entrepreneurs with a low/limited impact on economic growth.

This explains why the poorest countries (i.e. AFRICA & SOUTH AMERICA) have a high prevalence of people in entrepreneurial activity or as one researcher put it: All over the world a substantial fraction of the poor act as entrepreneurs.In general terms the poorest population has few labour skills and little capital and the option to become an entrepreneur could be easier than finding a remunerated stable job.

Schumpeter, respected economist refers to this group of entrepreneurs who are pushed towards entrepreneurship as necessity entrepreneurs.

  • They have limited or no options
  • They lack skills/ human capital
  • They cannot find employment
  • Starting a business is the only thing left to do in order to survive.

Important though is that this group remains relevant for any economy. Despite the small scale of business, they are still productive. They may not have substantial income or impact on economic growth, but they avoid poverty from getting worse and constitute a base for social mobility and human resourcefulness.


The AHI and business chambers have a collective mission to ensure that it create a healthy ecosystem in which entrepreneurship can flourish and succeed.

An entrepreneurial ecosystem consists the various elements necessary for entrepreneurship to grow and flourish. Individually these elements have/lead to limited success but if combined, it can accelerate SMME growth and development.

The components of an entrepreneurial ecosystem are:

  • Institutions
  • Markets
  • Education and Training
  • Human Capital
  • Culture
  • Support Mechanisms
  • Finances/Funding


A key difference between poor and rich countries is the manner in which their institutions are structured and operate. Extractive institutions are characterized by concentration of political power and wealth in the hands of a few. Inclusive institutions are known to favour democracy and distribution of power and strive to empower and protect every citizen as well as creating opportunities to allow them to reach their full potential

According to Daron Acemoglu and James Robinson many nations/counties fail today because of their extractive institutions. Poor countries in Africa e.g. Zimbabwe, Sierra Leone, in South America e.g. Colombia, North Korea in Asia have various cultural, language, historical, geographical differences- the one common denominator however is the extractive institutions that are allowed to flourish in all.

Extractive institutions prevent nations from embarking on a development path. They pave the way for complete state failure and usually destroy all forms of economic and social development.

Botswana is one of few countries able to break the extractive mold and establish inclusive institutions after independence. At independence Botswana was one of the poorest countries in the world with only

  • 12 kilometers of tarred road
  • 22 university graduates
  • 100 people who finished high school
  • Was surrounded/ locked in by hostile white regimes that did not support its independence

Forty – fifty years later and Botswana has evolved into one of the fastest growing countries in the world with:

  • Democratic government
  • Has regular and competitive elections
  • Never had a war or military intervention
  • Highest GDP in Sub- Saharan Africa

There is general consensus that Botswana’s road to prosperity can only be attributed to the inclusive institutions they managed to set-up.


According to President Barack Obama a secure/ growing middle class is the best thing to kick-start an economy and create jobs. On his recent visit to Africa he said, a key pillar of the USA economic recovery was growing the economy from the middle out and not top-down. He emphasized that one of the highest priorities of the Obama administration was its commitment to build and accelerate entrepreneurship that included growing and ensuring the USA middleclass is secure.

Africa’s middle class, currently estimated to be 310 million, has huge potential for entrepreneurship development as well as economic growth of the continent. McKinsey Global Institute estimate that Africa’s consumer spending, which was USD 860 billion in 2008 will rise to USD 1.4 trillion in 2020.

In addition to the growing African middle class, the recently established Africa Free Trade Zone (AFTZ) that includes 26 countries and 625 million people with a combined gross domestic product [GDP] of over $1-trillion, is regarded as an important step in the direction for the continents developmental agenda. It has enormous potential for encouraging intra-continental trade. Currently a mere 12% of total trade on the continent is among African countries compared with intra-regional trade of 21% in South America, 50% in Asia, and 70% in Western Europe. AFTZ has enormous potential to integrate Africa’s economies, remove trade barriers, stimulate economic activity and boost continental intra-trade.

Negotiations for the establishment of a Continental FTA that will embrace the entire continent a market of 1.3 billion people with a combined GDP of over $2-trillion was to commence in June at the 25th AU meeting and should be concluded by 2017.

In addition to the buying power of the middle class we also need to recognize its other roles.

  • Promotes development of human capital;
  • Promotes democracy;
  • Holds governments accountable
  • Counters terrorism and violence (crime?)

Extractive institutions will in most cases suppress the rise and growth of a middle class. If allowed, they will ensure the middle class remains small and can be controlled. The reasons are because the MC has always been regarded as a prerequisite for democracy as well as ensuring less political instability. This notion is based on the assumption that a MC can think and act independently and democratically.


Mike Herrington, director of the University Of Cape Town Graduate School Of Business’s Centre for Innovation and Entrepreneurship, said entrepreneurs are vital to South Africa if the country is to create more jobs and new products and enhance productivity. He pointed out that South Africa needs to fix its various long-term problems such as its poor education and health systems and corruption and crime before it can hope to improve entrepreneurship. South Africa has too few opportunity entrepreneurs. (you need some statistics here)

South Africa is to support more job-creating entrepreneurs and must back entrepreneurs who are motivated by the opportunity to start a business, rather than those who are driven by necessity or the need to survive. Opportunity-driven entrepreneurs hire an average of six people during the firm’s first three-and-a-half years, compared to necessity entrepreneurs who employ on average just two people

The unemployed and youth are often told that if they can’t find a job then they can always start their own business. Yet these people lack business experience, education and collateral.

If South Africa is serious about creating employment and addressing poverty, it will have to support those entrepreneurs who have the knowledge skills and right attitudes are motivated by the opportunity to start a business, rather than those who are driven by necessity or the need to survive.

SA poor economic development is linked to its poor education levels, science and technology and its inability to ultimately become a knowledge economy.


Human capital theory is based on the principle that higher investments in education leads to higher and better earnings. Human capital, the knowledge and skills acquired during formal and informal education and training is a core resource for starting and operating a successful business. The qualities and value entrepreneurs bring to new ventures are linked to the resources they accumulated over a period of time.

A strategic skill of any entrepreneur is the ability to innovate and embrace change. Schumpeter describes the drive for innovation and improvement as creative destruction, i.e. the process through which something new brings about the demise of whatever existed before.

  • Deng Xiaoping transformed China into the fastest growing large economy in the world (at a time when Europe, Russia sank into depression).
  • Since 1978 the Chinese economy grew at 9% p.a.
  • Since 1991 it grew by more than 11% p.a.
  • Economic growth in China has contributed to a rise in real income and standard of living for ordinary Chinese people.
  • In fact China has pulled approximately 600 million people out of absolute poverty since Deng Xiaoping unleashed market reforms in the late 1970s. Never in human history have so many people been pulled out of grinding poverty is such a short span of time.

Across the world, we find countries that invest in human capital are more successful in reducing poverty drastically. The total number of patents registered by countries serves as indicator of the investment made in education, research and development.


CHINA 704 936
USA 287 831
JAPAN 274 731
RUSSIA 28 765
BRAZIL 4 959
INDIA 10 669



  • Remove stigma of failure- starting a business is always risky. We should refrain from over-penalizing entrepreneurs.
  • Open doors for talent
  • Showcase successes Celebrate successes irrespective how small. One success often has a positive effect on other. Also serves as excellent way to motivate and encourage.
  • Single out high potentials and find ways to fast-track
  • Build a positive image of entrepreneurship
  • Celebrate innovation
  • Promote entrepreneurship as a career


Business chambers are in ideal situation to provide support to nentrepreneurs. Locked inside BC are years of business education, skills and experience which needs to be transferred to entreepreneurs by means of metoring and coaching.


There is a general perception amongst entrepreneurs that access to funds is a major barrier to entrepreneurial activity and growth The reality is that funding is not scares. A GEM study has established that funding is actually available in abundance in South Africa and the issue of scarcity is more a myth.


In summary allow me to conclue

We need active citizenry

As taxpayers and business people you have to become active in your community/town

SA is a democracy- we need to determine the type of institutions- INCLUSIVE by nature

BC can help people onto that first step of the development ladder, but only their own enterprise will Entrepreneurs build economies.

For a large percentage of the SA population job creation along the present development path fails to offer a viable basis for social inclusion and wellbeing-

Wages and salaries remain the main source of income for approximately 57%/5.9 million of the 10.3 million households (Stats sa 2008)Four million people lie below the poverty line where one person per household have a job for a wage that is too low to allow them to progress out of poverty (Meth 2008)

Quest for more jobs is crucial to also broaden the realisation of social rights

The strongest inroads in the fight against poverty has been made with interventions that ironically were not designed for it- SA SOCIAL GRANT SYSTEM. The latter ranks amongst the most impressive in developing world and has become the single most effective anti-poverty tool after 1994 (Meth, 2007)

This approach of handouts and dependence prevails- narrow conception of the state regarding its role

. Entrepreneurs are motivated and able to innovate, devising new ways to farm, provide basic goods and services, and solve social problems from edible insect farming for improved protein consumption in Thailand, to solar-powered lanterns where electricity is unreliable.

We know how important charity is in providing basic needs and empowerment. But if the end goal of development is long-term self-sufficiency, then we must engage the entrepreneurial spirit that is so vibrant in the developing world. The entrepreneurs and their workers will pay tax, invest back in their communities, and like our ambitious young carrom-board-seeking friend’s dream, never need a handout again.