The African continent’s future and advancement depend on its success in creating economic opportunities for the youth. Those opportunities are twofold: entrepreneurship and jobs.
According to the African Centre for Economic Transformation (Acet), business start-ups offer the most promising opportunity for African countries to diversify their economies and create jobs, especially for the youth. Africa will be the most youthful continent by 2050, with almost 25% of the global workforce based in Africa.
However, African start-ups face hurdles, including access to funding and difficult operating environments. If the continent is to unlock the potential of new firms, especially those started by young people, Acet recommends countries must create an entrepreneurship-friendly ecosystem.
The World Bank made the same recommendation regarding South Africa. In its 2021 economic update on the country the bank noted young entrepreneurs were one of South Africa’s best hopes for solving its jobs crisis. Almost 33% of South Africa’s labour force is unemployed, with youth and women bearing a disproportionately higher burden of this.
“There are an increasing number of start-ups, especially in the digital sector, which are growing fast and could in future become an engine of jobs growth. But for the entrepreneurship ecosystem to realise its full potential its key weaknesses need to be resolved,” the World Bank said.
Even though the failure rate among start-ups is high, those that fail leave behind people with work experience, something that, as SA labour market data shows, makes a big difference in one’s ability to find another job.
Ghana-based Acet said if African countries are to reap the benefits of their youthful populations they must fix the entrepreneurship ecosystems.
“Africa’s start-up potential will not be fully realised through isolated interventions. A co-ordinated policy architecture that links macroeconomic stability, targeted fiscal incentives, inclusive education and dynamic innovation ecosystems is needed,” Acet said in the policy paper “Macroeconomic policies supporting start-ups in Africa”.
It noted that even though Africa’s start-up ecosystem has grown dramatically, it remains underdeveloped relative to other regions, including Europe and Asia. In 2023 European start-ups raised $63bn and Asians $78bn. African start-ups only raised $2.3bn in the same year, “reflecting the continent’s limited access to capital and a significant disparity in funding compared to other regions”.
Other hurdles for African start-ups include regulatory complexity and inadequate infrastructure. Even where countries have introduced policies to support start-ups, the impact of these is blunted by poor implementation and a fragmented policy approach.
In addition, the informal nature of most start-ups creates challenges for policy interventions. Informality requires policies that are sensitive to the fluid and decentralised nature of these types of start-ups.
Acet recommended fiscal and tax policies that are supportive of start-ups. For example, tax rates can drain a new firm’s cash flow, a critical factor in a start-up business’s success or failure. Globally, start-up firms rely more on venture capital funding than bank loans, making venture capital crucial for Africa’s success.
Other interventions relate to the institutional frameworks for technology transfer, protection of intellectual property and collaborations between universities and industry. In the US, for example, university-industry collaboration is one of the key factors in technology entrepreneurship.
Then there’s skills development. Acet said for start-ups to innovate and scale-up they need a skilled workforce.
“To strengthen Africa’s talent pipeline policies should focus on integrating entrepreneurship into curricula, expanding university incubators, and offering training grants.”
• Sikhakhane, a former spokesperson for the finance minister, National Treasury and South African Reserve Bank, is editor of The Conversation Africa. He writes in his personal capacity.
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