Entrepreneurship out of necessity vs. entrepreneurship out of opportunity (Part 2/3)

August 20, 2015

Entrepreneurism leads to economic growth, but often not in Africa. Why? (Part 2 of 3)

In my previous blog, I described the active entrepreneurism I have experienced in Accra, Ghana, and many other places as well. Academic studies point toward positive links between entrepreneurial activity and economic growth. Entrepreneurs bring innovation by competing to find more efficient ways of creating value for consumers, simultaneously creating jobs for themselves and possibly others. Data shows that African countries, however, tend to have high rates of entrepreneurial activity but not the expected growth in income. Granted, entrepreneurial activity is just one of many factors that impact economic growth, but it still begs the question of why pervasive entrepreneurial activity has not led to more economic growth and improved incomes for many Africans.

Life in Africa is innately entrepreneurial. It is filled with immense opportunity coupled with high risk and uncertainty. From the street vendors to farmers trying to make a living with limited land and resources, many people must be entrepreneurial in order to survive. Most of these are necessity entrepreneurs, forced into entrepreneurship due to the human survival instinct and a lack of alternatives. The recent research linking entrepreneurship and income growth has recognized entrepreneurs for the significant role they play in economic development; however, necessity entrepreneurs appear to have a much smaller impact compared to opportunity entrepreneurs, who choose to be entrepreneurial and actively look for opportunities with growth. Necessity entrepreneurs tend to operate in crowded markets and lack the potential to grow their business. Opportunity entrepreneurs possess a vision for enterprise growth accompanied by the insight to make an enterprise work.

Stay tuned for Part 3 of this series: Transforming necessity entrepreneurs into opportunity entrepreneurs