There are numerous barriers to entrepreneurship in developing countries. Africa is a foremost example in this regard as its entrepreneurs have to contend with some of the toughest conditions as compared to the rest of the world. Considering the continent’s great potential as an emerging market, it is quite unfortunate that so many problems plague its commercial sector.
Emerging business organizations in Africa play an important role in fueling the economy. A majority of the locals get their income from such jobs. And with the current rate of globalization, opportunities for growth abound at an inconceivable scale. However, a majority of business owners face challenges that are to a great extent exclusive to the continent.
These issues need to be addressed as Africa comprises the world’s youngest population which is likely to more than double by the year 2050. This means that demand for employment and stable income sources is set to experience a dramatic rise. In this article we would like to consider some of the most common challenges faced by entrepreneurs on this continent and possible solutions.
Problems Faced by Entrepreneurs in Africa
Economic development of any sort requires basic infrastructural framework. Good roads, consistent power supply and transportation facilities such as railroads and waterways are to a great extent lacking in most of Africa. Small manufacturers instead have to contend with constant power blackouts and surges. This in turn causes equipment damage and reduced productivity. Bigger firms have to invest in electric power generators and this makes the production process more expensive and the products end up being less competitive in the market.
The deplorable state of roads and railway systems is also a major problem for local business people. Moving goods from one part of the country to another takes a lot longer than necessary and incurs higher costs. This is particularly challenging for those who deal with perishable goods as by the time they get to their destinations some of their product is already damaged.
The continent also faces a poor communication network. The recent proliferation of mobile devices has greatly helped to improve on this aspect. However, the internet is still inaccessible to the majority of the populace. And even for those countries where it is accessible like South Africa, the cost is still way above the global average.
Startups in all parts of the world mostly have to contend with limited capital. This makes it necessary for them to get extra financing to execute business operations. What makes this a major problem in Africa is the fact that there is limited access to such funding and that it comes with a hefty price tag attached.
Financial institutions have not kept pace with the rapidly growing number of small businesses on the continent. The fund base for financing these startups has thus remained stagnant limiting the number of firms that can gain access. At the same time, most of the small business operations do not have required business plans and other documentation required for funding. This makes the lenders hesitant to advance funding as the borrowers remain extremely informal and therefore high risk.
The business operators at times also suffer in silence as they lack knowledge about funding options at their disposal. Some are not aware of micro-finance institutions that would be more willing to partner with them than banks.
One of the biggest challenges of entrepreneurship in Africa has to do with corruption. It is common for traders to face an ethical conundrum whereby they either have to pay hefty bribes or risk having their activity blocked by high-ranking public officials. It deters both the growth of the region and the spirit behind entrepreneurship.
Such ethical issues in business have a widespread effect that at the end of the day reaches every facet of the community. When traders have to bribe to get the necessary permits or certification, they pass this cost on to their consumers. Anyone who refuses to pay such bribes experiences deliberate delays and other frustrations. Product prices remain high and supply is limited and this causes inflation.
Corruption also limits government revenue as there is always a way around taxes and other obligations. When the government has a revenue shortfall it translates to a budgetary deficit and limits development. Funds allocated for infrastructural development are misappropriated and some projects are executed with substandard material to cover up. Other projects never take off or are left unfinished. As discussed above, poor infrastructure is a big obstacle for investors.
It is clear that corruption has far-reaching tentacles that keep the continent in a vicious cycle that hinders entrepreneurship and stunts growth.
- Political Instability
Political uncertainty rocks a big percentage of the African continent. Businesses thrive on forecasts and speculations about the future. Accurate predictions rely on consistency and certainty. This makes political instability and uncertainty a major repellant for both foreign and local investment in areas marred by conflict.
Investors fear the chaos and social unrest that result as it adversely impacts day-to-day operations. It takes a lot of time and resources to set up business facilities. Government cooperation is especially important in facilitating the process. But when political unrest sets in, employees are forced to miss work, profits plummet and at times business premises are even destroyed by protestors.
This has become the order of the day on the African continent with major economies like South Africa, Nigeria and Egypt taking a major hit as a result this year.
Africa’s economic framework is largely based on agriculture. But conflict has made it continuously fail to reach its full potential in this regard. It disrupts the supply of input and distribution of farm output; it leads to massive price fluctuations and also causes labor displacement. This makes it hard for agricultural investors to maintain their business operations in volatile areas.
This has proved to be a double-edged sword in more ways than one for the continent. Even though it has presented numerous opportunities for growth and expansion, this has also limited this growth. Foreign firms have taken advantage of the low labor rates in the local market to export their production processes. This has been a big blow to the local manufacturers even causing some to shut down due to competition.
- Evolving Regulations and Policies
A majority of African countries have to work under confusing regulations and policies that are constantly changing. Import regulations in particular are extremely strict in many areas and this makes it very difficult to engage in meaningful international trade and raises costs. The inconsistency is also considered risky for traders and makes some shy off altogether.
- Gender Bias
There are some unique problems of women entrepreneurs on the continent that are exclusive to the gender. A majority of them have no property to set up as collateral for funding limiting their access to capital. Additionally, many financiers deem women as high risk borrowers and do not easily advance loans to them. Their mobility is also limited as the cultural set up frowns upon women who have to travel for business and seek accommodation in motels or other public spaces. A high percentage of women on the continent is illiterate as the girl child is rarely given priority in education.
Solutions to Problems Facing Entrepreneurs in Africa
Due to the fundamental role that small business owners play on the African economy, the fact that it is lagging behind should be a matter of concern. The challenges facing entrepreneurs in developing countries on the continent can be addressed. Consider a few possible solutions that can improve entrepreneurial participation in Africa and the global market at large:
- Anti-corruption Campaigns
Corruption is at the heart of this problem and should be the first to be eliminated. This should begin at the lowest possible level with individual entrepreneurs refusing to offer bribes for rightful services. Even though it is an abuse of power and numerous campaigns have tried ending it from the top downwards, even the traders are complicit and should bear their fair portion of the blame.
Such an approach would however take collective action because any single entity that refuses to offer bribes will suffer and get overpowered by the competition. But if like-minded firms and individuals were to agree to say no to the vice, they will make a difference.
- Improved Financial Assistance
There are numerous alternative funding options for startups. Small entrepreneurs have the responsibility to understand these options and make good use of them. They also need to improve their business management skills so as to be able to draft proposals and business plans that are usually requisite for any form of funding. Better education will also reduce misappropriation of borrowed funds and help small businesses to expand.
Financiers also need to develop more products for these small enterprises and create awareness of them. This will help more business persons to take advantage of them for mutual benefits.
- Government Initiatives
The governance systems of most African countries still have room for improvement when it comes to assisting local entrepreneurs to grow. They could for instance adjust policies that work against investment interests within local markets and abroad. It would also be in the investors’ best interests if such policies are kept consistent so that they can learn the requirements and tailor their approaches to conform.
Offering a stable trading environment is also paramount if at all the African continent is to catch up and keep pace with the rest of the world. Consistent effort in the right direction is however required if the dream is to be realized. Peace campaigns and governmental reforms are needed so as to quell the public’s outcry over the current state of affairs.
- Regional Blocks
Regional trading units are a big step in the right direction. Just like on the international market scene, the continent’s different markets have differing levels of demand and supply for products. It is easy to identify these trends and take advantage of them and trading blocks make this a lot easier. These usually comprise neighboring countries with similar cultures and sophistication levels.
Kenya has set a good model in this regard by opening up its borders to all African visitors. The president made this statement in his inaugural speech for the second term in office saying that all visitors would receive a visa at their ports of entry. Such regional integration will foster unity and help make the continent one united market supporting local entrepreneurs. Ghana, Benin, Rwanda and Mauritius also have similar laws in place and it is hoped that others will follow suit.
- Improving Local Infrastructure
This is one of the greatest crippling challenges for the continent but fortunately it is also solvable. It calls for additional investment into the sector using locally collected tax revenues and funding from the region’s institutions. The interest shown by such major economies as China in assisting the region to advance should be fully utilized.
It would also be wise for governments to consider privatization of such development projects. This often leads to higher accountability and better output than has been the case so far with governments trying to do it all. Direct government participation has so far been ineffective but privatization will support local entrepreneurs and get things done faster.
Waystocap – A Permanent Cure for Problems Faced by African Entrepreneurs
Looking at the above entrepreneurship challenges and opportunities for the African continent, it is evident that a lot needs to be done to get it to the level of top world economies. But it is also clear that the potential in this continent of contrasts is still far from being reached. This makes it the perfect field for harvest by both local and international investors.
Waystocap has realized the potential in this market and seeks to identify unique solutions tailored to meet its needs. We are the first African B2B marketplace and offer you all the resources you require to trade on the continent. We assist you to get resources on the regulations and policies governing different markets in the region.
Our platform offers a secure trading ground where you can network with like-minded individuals and create a successful business from the ground up. By partnering with Waystocap, you can be sure to surmount the major obstacles in this market and reap big from your investment. Sign up with us today and get the ball rolling.