Association for Free Research and International Cooperation

Under what conditions can Youth Entrepreneurship reduce unemployment and poverty in Africa?

25.01.2020
Article from AFRIC Editorial
The popular saying that the African continent is a continent full of opportunities is not a myth. With about 40% of the world's natural resource reserves and 60% of its agricultural land undeveloped, the continent is still lagging behind in terms of economic and industrial development. While the blame can be laid on the high levels of corruption and a very unattractive business climate, the situation seems to be getting better now that policymakers have realized that the fight against rampant unemployment must go beyond the traditional sectors. Several solutions have therefore been found to offset the high proportion (60% of the 200 million people aged between 15 and 24 according to the World Bank) of youth unemployment on the continent. The promotion of a young entrepreneurial ecosystem in Africa has been the most successful of these solutions so far the.

For Mr. Abdoulaye Mar Dieye, Director of the United Nations Development Program’s Regional Office for Africa, “the key to successful development in Africa is to nurture the growing culture of entrepreneurship (…)”. Aeneas Chuma, the International Labour Organization Regional Director for Africa supported this point of view at the opening of the General Assembly of the Federation of Employers’ Organizations of West Africa, in Praia, Cape Verde, by adding that “to accelerate its economic transformation and create decent jobs, Africa must promote entrepreneurship among young people”. However, in order to make these challenges a reality, several conditions must be met so that youth entrepreneurship in Africa will be the “booster for economic development” on the continent in the coming decades. What are these conditions?

Promoting inclusion and financial education

According to an AfDB report shared by Eric Bazin, a former journalist and founder of LAB (Land of African Business), “72% of young Africans say they are attracted to entrepreneurship”. But to get there, Africans must first be taught the basics of inclusion and financial education. In many African countries, most of the young entrepreneurs are confronted with the same difficulties; funding or start-up capital. This problem is one of the main barriers to the entrepreneurial take-off on the continent today. For those who have the possibility of acquiring loans from financial institutions, high interest rates and short loan repayment periods prevent them from sustaining their businesses in the long term. These high interest rates, with loan terms generally set between 6 and 12 months, often do not allow these young entrepreneurs to survive and break-even quickly. Statistics collected from financial bodies in some African countries show that the interest rates charged by financial institutions are not relevant to promote self-employment and poverty alleviation.

In Malawi, for example, the average interest rate applied by banks is over 40% (African Development Bank, African Economic Outlook, 2015), 19% in the DRC (Central Bank of Congo, Monetary Policy Report 2015) and varies between 17 and 27% in Nigeria (Central Bank of Nigeria, 2016).

In order to close the gap and promote inclusion and financial education, many believe that it is necessary to implement the recommendations of the International Labour Organization (ILO), which states that in order to curb unemployment and poverty, it is necessary to “introduce entrepreneurship and financial education into school curricula”. Thus, from the earliest age, Africans must know the importance of opening an account with a financial institution. The low level of financial inclusion partly explains the difficulties of access to finances faced by the continent’s young entrepreneurs. According to the World Bank Report; Financial Inclusion Data, 2014, While 46% of young people worldwide have an account with a financial institution, this proportion drops to 20% in Africa. At the same time, only 11% of young people save with these institutions, and less than 3% benefit from loans. We must therefore use this lever, which represents an opportunity to improve the economic integration of young people.

Stimulating mass entrepreneurship

In an Africa where 60% of the unemployed are under 25 years old, it is important to rekindle the desire of unemployed young people to start their own businesses. Statistics show that 35% of the unemployed plan to start their own businesses. In Sub-Saharan Africa for example, if we want to succeed in employing the 29 million young people who join the labour force in this part of the continent every year, we will have to multiply initiatives and rely on mass entrepreneurship, the driving force behind mass employment. In this particular case, we are talking about human-sized companies that will never be listed on the stock exchange, but which employ between five and twenty people.

 

Madjiguene Sock, Director of Operations at Dalberg Consulting, calls on African policy makers to develop policies, financial and commercial tools to facilitate self-employment and accelerate the growth of Small and Medium-Size Enterprises in order to facilitate the prosperity of mass entrepreneurship.

There is a need to support entrepreneurship among vulnerable groups in order to achieve more inclusive economic development. In the 18 African countries for which statistics are available, entrepreneurs who started their businesses to exploit specific opportunities represent 11% of the working age population, a higher proportion than in developing countries in Latin America (8%) and Asia (5%). According to the Global Entrepreneurship Monitor/Youth Business International (GEM/YBI) 2013 report on youth entrepreneurship, which also praises the stimulation of mass entrepreneurship in Africa, “Sub-Saharan Africa has the highest proportion (60%) of potential entrepreneurs among 18-35 year olds of any region in the world”. The “Barometer Of Business Leaders’ Opinion” of the Permanent Conference of African and French-speaking Consular Chambers is not left out, since it believes that the continent is on the right track, since, according to a survey, 12% of the business leaders surveyed are under 30 years of age.

Disseminating recruitment figures from the entrepreneurial ecosystem

Although it is difficult to have a clear idea of the number of jobs created by start-ups in Africa due to bureaucratic obstacles and lack of conviction on the part of African leaders, many experts believe that the continent has made several advances in this area.

In the case of Côte d’Ivoire, one of the most illustrative, along with Kenya, Nigeria and Togo, the Ivorian Chamber of Commerce and Industry has tried to provide an answer regarding the figures: it is estimated that 100,000 jobs have been created in the country thanks to the upsurge in start-ups and similar activities. Even if the number seems to be crippling, however, we must put this into perspective when we consider the unemployment rate in most of these countries.

Focusing more on women entrepreneurship

Female entrepreneurship has a bright future in Africa. It is no longer a secret that the continent is ranked first in the new report on women’s entrepreneurship published by the Rolland Berger Law Firm. With the highest female Entrepreneurial Activity Rate (EAR) in the world, the continent continues to produce quality new entrepreneurs every year. According to “Entrepreneurship Study”, the latest study on the subject unveiled by Rolland Berger for Women in Africa, nearly 24% of African women of working age are actively involved in the creation of new businesses, whether they have just been launched or have already been in business for several months.

Far ahead of those reported in other regions of the world such as South-East Asia and the Pacific, where the figure is as high as 11%, Africa impresses with its figures, since according to the study, the latter two regions are at the top of the Global Entrepreneurship Monitor’s ranking of entrepreneurs around the world.

Public policies must do more to encourage women to become involved in entrepreneurship, as they have already shown that women who succeed in taking the plunge generally have sufficient capacity to stay in business over the long term. The entire continent is thus benefiting from the economic spin-offs of the female entrepreneurs that are increasingly asserting itself on the continent by creating wealth. For the year 2016, for example, the authors estimate the total value of GDP created by women entrepreneurship in Africa to be between 250 and 300 billion US dollars, or about 12-14% of the continent’s GDP.

Addressing the Gender Entrepreneurial Disparities

Despite their strong contribution to the continent’s GDP output, female entrepreneurs on the continent still face disparities when it comes to measuring and comparing performance with men. Several reports have already been produced in this regard to urge governments to take action in order to reduce these disparities. One of such report is the World Bank’s report, published in Accra on 26 March 2019, proposes a series of evidence-based solutions to address the deep disparities in performance and profitability between male and female entrepreneurship in sub-Saharan Africa. For this region of Africa, the report, titled “Profiting from Parity: Unlocking the Potential of Women’s Businesses in Africa”, states that female entrepreneurs systematically lag behind their male counterparts on several key business performance indicators. On average, they make 34% less profit than male entrepreneurs and 38% less monthly turnover.

Considering the fact that women on the continent tend to be more likely than men to engage in entrepreneurship, it has become crucial for African economies to close these gaps. Hafez Ghanem, World Bank Vice President for Africa, who advocates for the alleviation of specific barriers faced by women entrepreneurs, believes that African states will stand to gain more because, by doing so, “these states will not only improve the business environment, but also maximize the benefits of private sector development”.

A bright future lies ahead for young entrepreneurship in Africa in the years to come. The ILO, in its report “Youth Entrepreneurship at the Heart of Africa’s Sustainable Development Agenda”, estimates that 50 million decent jobs could be created on the continent by 2030 through entrepreneurship.

For Khalep Igue, President of the 2030 Africa Club, who spoke at the Youth Entrepreneurship Forum, organized in partnership with the Active Growth & Youth Program (AGYP) and its partners, which immediately raises the important role that entrepreneurship plays in the creation of jobs and wealth in the African economy, “if we want to achieve the 2030 horizon of concrete objectives, it will be necessary that the promotion of entrepreneurship, the establishment of a favorable environment, support and access to financing coexist”.

Article from AFRIC Editorial

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