The Polish journalist, author, photographer, and Nobel Prize candidate Ryszard Kapuściński wrote: “The continent is too large to describe. It is a veritable ocean, a separate planet, a varied, immensely rich cosmos. Only with the greatest simplification, for the sake of convenience, can we say ‘Africa’. In reality, except as a geographical appellation, Africa does not exist.”
This idea has intrigued me in the field of entrepreneurship. Far too many statements are made about “entrepreneurship in Africa”, as if the diversity and uniqueness that characterise the 54 countries on the continent can somehow be blended together and aggregated into a single measure or metric. Against this backdrop and my deep interest and background in the field of entrepreneurship, I have set out to understand why some African countries have embraced entrepreneurship and are showing signs of becoming fast-growing start-up ecosystems while others have yet to embrace all that a start-up mindset and culture promise.
Why should you care?
Africa is not a country
As Astrid Madimba and Chinny Ukata say in their book It’s a Continent (see the Apple podcast of the same name), “Africa’s history is everyone’s history”. This is especially poignant for us on the continent. The sentiment is echoed by Dipo Faloyin in his book Africa is Not a Country: “The continent is a coalition of over a billion individual identities that structure specifically.”
The story of the African continent is complex, as are the pre-colonial, colonial and post-colonial narratives that define each country. It is well beyond the scope of this article to discuss this in detail; the roles of colonialism and colonialists were and still are divisive – in every way – and have left an indelible mark on the continent, as have the post- and at times neo-colonial eras.
Colonialism advanced the idea of national unity, modelled no doubt on the political structures that grew in Europe during the turn of the last century. Abubaker Tafawa Balewa, who in 1948 became the first Nigerian federal prime minister, remarked, “Since 1914 the British government has been trying to make Nigeria one country, but the Nigerian people themselves are historically different in their backgrounds, in their religious beliefs and customs, and do not show themselves any sign of willingness to unite … Nigerian unity is only a British invention.”
The need for greater levels of entrepreneurialism is by now an axiomatic idea; few countries are not pursuing this strategy toward greater economic inclusion, job growth and poverty alleviation.
As large companies are shedding jobs and governments, especially in least-developed countries, are proving to be less and less capable of providing the social services their growing populations need, entrepreneurs are stepping confidently into the gap and creating new ventures and new jobs, and addressing social issues.
Nowhere is this more important than on the African continent. With a large youthful and un- or under-employed population, the need to address the youth bulge is at least as important as dealing with climate change and environmental degradation. The Mo Ebrahim Foundation reports that 60% of people on the continent are under the age of 25, and few have found favourable economic opportunities. Even those with higher education struggle with the widening gap in employment between those with basic education and those with higher education.
The youth bulge has the potential to pay a profound dividend to the continent or may represent a ticking time bomb. Our collective inability to create meaningful work for young people living on the African continent could lead to increased frustration and disillusion, spilling over into social and political unrest. Looking to China, Korea, and some North African countries, we can see that the youth bulge can become an asset, as these countries have liberalised economic policy and as a result brought youth into the economy and reduced unemployment in this sector to under 12%.
Mice, gazelles, and elephants
There are many ways in which entrepreneurship – at a country or regional level – has been described and understood, with ecosystem models being the current theory in vogue. Maybe because of the ecological bias, I have reached back to the work of economist David Birch, who in the mid-1990s began using the term “gazelles” as a descriptor for fast-growing companies that are responsible for most job growth. (Gazelles are defined as “a business establishment which has achieved a minimum of 20% sales growth each year over the interval, starting from a base-year revenue of at least $100 000”, according to Henrekson & Johansson, 2010.)
His work has been validated over the last two decades, as researchers have found that while gazelles are rare – only about 2% to 4% of companies can claim this status, they account for around 70% of all new jobs created.
Birch differentiated between mice (small firms with no growth potential), gazelles, and elephants (very large but slow-growing firms).
Many other descriptors have since been added to Birch’s bestiary. Most notable are “Gazillas”, large and fast-growing firms that dominate an economy or sector. Think Apple, Google, Alibaba, or Gazprom. The theory has not been applied at a country level, and I have borrowed the term to describe African countries that are fast embracing an entrepreneurial path.
There is no single unifying measure of levels of entrepreneurship at a country level. The Global Entrepreneurship Monitor (GEM) is seen as the most robust and comprehensive baseline measure, but the study is not conducted in every African country. Drawing on a range of measures and standards, including the GEM Report, the CEO World Africa Entrepreneurship Index, the World Bank Ease of Doing Business Index, and a healthy dose of common sense, I have identified ten countries that appear to be exemplars of African entrepreneurial gazelles.
There is no specific reason for selecting ten countries apart from the symmetry of the number, and it is likely that the inclusion and exclusion of some countries may be a surprise. I have some interest in regional differences as African countries cluster into economic cooperation groupings, and so sought to find some balance between them across the continent.
The ten countries I have been researching are: Egypt, Morocco, and Tunisia (North), South Africa and Zambia (South), Nigeria and Ghana (West), and Kenya, Rwanda, and Tanzania (East).
While the subtle differences in entrepreneurial activity and success are outside the range of this short article, there are some interesting findings that have emerged.
While entrepreneurship-positive policy doesn’t in and of itself give rise to the formation of new ventures, there is a link between start-up-friendly policy and the desire for entrepreneurs to grow a business in a particular jurisdiction. Tunisia has been the first African country to draft and pass a Startup Act aimed at supporting tech-based start-ups. Ghana, Rwanda, South Africa, and Kenya are all at the draft stage of policy that is directed toward supporting high-growth start-ups, as distinct from small business support.
Second is investment.
Following the flows of venture capital and early-stage investment is a good indicator of the health of a start-up ecosystem. Data from 2022 shows that $5.2 billion was raised by start-ups on the African continent, with a concentration of deal-making in West Africa.
Africa’s “Big Four” start-up nations – South Africa, Kenya, Nigeria, and Egypt – dominate the funding space in terms of number of deals and value, although for the first time ever South Africa showed a decline in early-stage investment in 2022, a worrying sign and no doubt in direct relationship to the state of governance in the country.
Nigeria dominated the allocation of capital on the continent, although a few large deals have skewed the data for 2021. South Africa, Egypt, and Kenya make up a combined 45% of all deals for 2021 (by number, not dollar value), also representing a higher number of early-stage investment deals.
Third is sector focus.
It has been interesting to see where entrepreneurs focus their attention and how institutional failures on the part of the state have given rise to opportunity. For example, by far the largest sector focus has been financial services, accounting for $1.4 billion in investment and 43% of deals.
As I continue this research, on my mind is how other African countries can catch up and infuse greater levels of entrepreneurship into their economies. The World Economic Forum has been contemplating the same thing, and in a blog post late last year, Aimée Dushime, a London-based adviser with KPMG and former Mandela Washington fellow, had this to say: “East to west and north to south, Africans are young, ambitious, and smart. If given the right tools to dive into tech and the right regulations are introduced, the continent’s nascent tech scene will flourish.”
Sources and further reading:
- Acs, ZJ, & Mueller, P “Employment effects of business dynamics: Mice, gazelles and elephants.” Small Bus Econ 30, 85–100 (2008). https://doi.org/10.1007/s11187-007-9052-3
- Faloyin, D. (2022). Africa is Not a Country. Harvill Seeker
- Henrekson, M & Johansson, D "Gazelles as job creators: a survey and interpretation of the evidence." Small Bus Econ 35, 227–244 (2010). https://doi.org/10.1007/s11187-009-9172-z
- Madimba, A, & Ukata, C. (2022). It’s A Continent. Coronet.
- Meredith, M. (2013). The State of Africa. Simon & Shuster.