Wednesday, March 15, 2006

Notes on Entrepreneurship in Africa

Bosire, Joseph and Paul Gamba. “Measuring Business Skills Cognition: The Case of Informal Sector Entrepreneurs in Kenya

“Both the private and public domains have credited the informal sector as a provider of jobs to Kenyans and as a prime mover in the country’s efforts towards industrialization” (1).

“All these studies recognize the vital component of business knowledge in business management and identify it as one of the main factors in explaining business failures especially in the informal sector” (4).

“The findings of this study conform to the view that knowledge is a very powerful tool in many respects and spheres of modern living. Business practice, especially in a liberalized economy, requires the ability to know what to do and how to perform so as to manage the business and the clients” (17).

Amponsah, Nicholas. “Ghana’s Mixed Structural Adjustment Results: Explaining the Poor Private Sector Response.”

“The most worrisome aspect of Ghana’s fifteen years of market liberalization reforms in the failure of domestic private business to respond enthusiastically with increased investment” (9).

“The adverse effects of a lukewarm private sector response are manifest in the poor performance of Ghana’s industry, especially value-added manufacturing, the absolute value of which was a meager 14.7 million in 1991” (10).

“Instead of focusing attention on the private sector’s response and participation in the economy under market liberalization reforms, most studies examine macroeconomic indicators such as Gross Domestic Production growth, current accounts, inflation and the like” (10).

Ghana is an excellent case study to examine the preconditions for the success of a program of market liberalization reforms because it has always been at the forefront of African socioeconomic development issues” (11).

“The results from the survey provided valuable explanations for the low levels of private investment in Ghana during reforms, insights that previous studies failed to identify because of their focus on macroeconomic variables and other less mundane issues” (12).

“Even though it is true that on some occasions the IFIs do stress the need to go beyond macroeconomic stabilization, they ultimately retreat to the same faith in the market, as the panacea to economic ills” (12).

“Mention is often made of the lukewarm response of private business, but little critical attention has been focused on the forces that militate for their own sake” (13).

“Any study of contemporary market reforms in Africa must have as its ultimate goal the analyses of the forces militating against the nurturing and development of a domestic private entrepreneurial class, which has been identified as critical for the development of markets and growth of economies in late developing countries” (14).

“While domestic entrepreneurial development is considered the sine qua non for growth and development for late developing countries, this is also the critical variable missing in Africa’s development trajectories” (14).

“In fact, a World Bank study of the constraints to business financing in Ghana concluded that many small and medium sized enterprises achieved substantial growth through reinvestment of profits” (15).

“Ghanian entrepreneurs know that certain political and legal institutions affect their invested capital. These entrepreneurs, whose typical source of continued development is reinvestment of profits, would be most willing to plow back most of their profits as reinvestment, if a conducive institutional environment existed” (16).

“…a common trend is that most started small, reinvested profits and other resources, and grew gradually, adapting or shifting product lines as need be” (16).

“In the recent past, when Ghana was under military dictatorships, a common occurrence has been the capricious seizure of the properties of certain entrepreneurs, most often by the fiat of decree” (18).

“Private entrepreneurs generally held the belief that the Ghanian regime is intrinsically antagonistic to private business people” (19).

“Out of 437 respondents who reported on this matter, an overwhelmingly majority, 301, felt that the laws, rules or regulations of procedure were not explicit or consistent” (23).

“As the cross-tabulation analysis further indicates, the more private entrepreneurs perceive such uncertainties related to the rules for doing business, the less likely they are to commit their resources to gainful investment” (23).

“Thus, not only are Ghanian entrepreneurs confronted with problems of property rights protection and expropriation, but they also have to deal with pervasive abuse of discretionary power” (24).

“The difficulty that faces an entrepreneur, either in initiating a business venture or in maintaining and consolidating such a business, may in part be the result of bureaucratic bottlenecks” (25).

“The hierarchy of bureaucratic authorities necessary to transact a particular piece of official business is considered very important because it represents conditions that may be costly to an entrepreneur, in terms of access to the attainment of official requirements necessary for continued productive activity” (25).

“Undoubtedly, the problems encountered by entrepreneurs as the result of the multiplicity of bureaucratic agencies could even be exacerbated by the prevalence of a decadent bureaucratic culture” (27).

“There are certain conditions that assure individual entrepreneurs of participating in the shared growth that market reforms seek to bring” (28).

Silitshena, R.M.K. “Regulation and the Development of Petty Trade in the Kweneng” 1980.

“Problems of entrepreneurship and petty trade have largely been ignored inplanning to reform land tenure and land use in Botswana” (151).

“Thus, West Africa has for long had a remarkably developed indigenous trade network, both short and long distance, and indeed Europeans and other aliens have been far less successful in penetrating parts of the trades such as the long-distance trade in cattle and kola” (151).

“The internal trading system in Botswana, as in East Africa, was introduced by aliens, in he case the European traders” (153).

“The procedures for obtaining a license are very bureaucratic. The applicant must start by applying for land to the Land Board…” (156).

“Once a trader starts his business, he has to operate within a plethora of laws and regulations” (156).

“What this means is that in areas of low population density or low per capita income for a given central good for which consumers are not prepared to travel long distances, the trader has to move round to collect sufficient custom” (159).

“It cannot be denied that consumers must be protected against unscrupulous traders and from health risks. Equally, it cannot be denied that the government has a duty to see to it that the commercial sector develops in an orderly fashion” (161).

Schumpeter, Joseph “Capitalism, Socialism and Democracy.” 1950.

Without entrepreneurs: “Socialism of a very sober type would almost automatically come into being. Human energy would turn away from business. Other than economic pursuits would attract the brains and provide the adventure” (131).

“We have seen that the function of entrepreneurs is to reform or revolutionize the pattern of production by exploiting an invention, or more generally, an untried technological possibility for producing a new commodity or producing an old one in a new way” (132).

“To act with confidence beyond the range of familiar beacons and to overcomes that resistance requires aptitudes that are present in only a small fraction of the population and that define the entrepreneurial type as well as the entrepreneurial function” (132).

“This function does not essentially consist in either inventing anything or otherwise creating the conditions which the enterprise exploits. It consists in getting things done” (132).

“Technological progress is increasingly becoming the business of teams of trained specialists who turn out what is required and make it work in predictable ways” (132).

“Thus, economic progress tends to become depersonalized and automatized. Bureau and committee work tends to replace individual action” (133).

“His role, though less glamorous that that of medieval warlords, great or small, also is or was just another form of individual leadership acting by virtue of personal force and personal responsibility for success” (133).

“Economically and sociologically, directly and indirectly, the bourgeoisie therefore depends on the entrepreneur and, as a class, lives and will die with him, though a more or less prolonged transitional stage – eventually a stage in which it may feel equally unable to die and to live – is quite likely to occur, as in fact it did occur in the case of feudal civilization” (134).

“The perfectly bureaucratized giant industrial unit not only ousts the small or medium-sized firm or expropriates its owners, but in the end it also ousts the entrepreneur and expropriates the bourgeoisie as a class which in the process stands to lose not only its income but also what is infinitely more important, its function” (134).

Macgaffey, Janet. “Entrepreneurs and Parasites.” 1987.

“This study [in part]…points to the part played by entrepreneurial talent, innovation and hard work in overcoming this difficulty” (15).

“Parasitic aptly describes Zaire’s form of capitalism. The virtually unlimited power of those at the top has allowed them to pillage and plunder the natural riches of their country and to amass vast fortunes. They have been in truth, parasites, sucking the lifeblood of the economy for their own benefit” (16).

“That economic activities independent of the state exists on the huge scale found iZaire and other African countries challenges the importance accorded to the state in the literature on class formation in Africa” (24).

De Soto, Hernando and Robert Litan. “Effective Property Rights and Economic Development: Next Steps” 2001.

“If it were a matter of applying the standard neoclassical model used by many economists, solving the growth problem would be relatively easy, somewhat like baking a cake: add some capital (domestic or foreign), technology, and education to a fixed supply of labor and assume the presence of some basic market institutions, and growth of income per capita should follow inexorably” (251).

“Our claim is more modest: finding a way to formalize property that is now widely held informally is a necessary but not sufficient, condition for achieving faster growth and for thwarting a looming backlash against capitalism in parts of the developing world” (253).

“For property to come alive, its ownership must be widely recognized. In the informal world, only personal relationships count…” (260).

“In more advanced economies such as the united states, individual entrepreneurs often start their businesses with funds raised by borrowing against their homes. The masses who live in informal structures cannot use their homes as collateral for borrowing from formal lenders and thus do not have the financial wherewithal to launch modest businesses” (261).

“In fact, this very same study found that in another region of Ghana, prior recognition of property rights helped to induce an increase in investment” (263).

Enwegbra, Basil. “The African Entrepreneur.” 2002.

“…highly educated Africans did not hesitate to go where the money and the prestige were. It was only those who could not be part of the ruling class that had to make do with being entrepreneurs and capitalists” (1).

“In other words, most Africans who moved into the private sector did so with some sense of reluctance, and wanted to join the political class as soon as they could” (1).

“Another element of African business philosophy that contributed to the failure of indigenous capitalism is the tendency to hand over the business to a son or a family member – even when the training, experience and passion required were lacking” (1).

“The tendency for entrepreneurs to use business profits for luxury purchases – whether for fancy housing, cars, or expensive public donations to demonstrate wealth – caused not only financial problems related to the financing of day-to-day operations but also early collapses and exits from business” (1).

“On the part of African governments, they, rather than viewing local entrepreneurs and capitalists as social threats and passive owners buffeted by external forces, should see them as potential creators of wealth as well as potential transformers of the same environment in which they struggle to survive” (2).

“Finally, the African capitalist should no longer be perceived as the bearer of an alien culture instrumental to destroying indigenous cultures. Rather, he should be embraced as a potential mediator and innovator in the process of adaptation” (2).

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