2. DRAFT
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“He is now rising from affluence to poverty.”
-Mark Twain
“In a country well governed, poverty is something to
be ashamed of. In a country badly governed, wealth
is something to be ashamed of.”
-Confucius
Table of Contents
“Poverty is my pride.”
Executive Summary
-The Prophet Muhammad
2
3. DRAFT
Table of Contents
I. The African Development Context.................................................................................................. 5
Introduction – The Need for Action in Sub-Saharan Africa ................................................................ 5
Context – Global Development Efforts ............................................................................................... 5
Measuring Development Progress in Sub-Saharan Africa .................................................................. 6
Conclusion ........................................................................................................................................... 7
II. African Economy and Other Macro-Factors ................................................................................... 7
Resiliency and Growth ........................................................................................................................ 7
Economic Growth Drivers ................................................................................................................... 8
Risks to Economic Growth .................................................................................................................. 9
Additional Macro-Factors ................................................................................................................... 9
Conclusion ......................................................................................................................................... 11
III. African Entrepreneurship and Innovation ................................................................................ 11
Global Entrepreneurship................................................................................................................... 12
Sub-Saharan African Entrepreneurship ............................................................................................ 12
Alleviating Poverty through Entrepreneurship ................................................................................. 13
IV. Country Analysis........................................................................................................................ 13
Framework for Determining Attractive Markets .............................................................................. 13
Financial Return Dimension .............................................................................................................. 14
Social Return Dimension ................................................................................................................... 18
Mapping Attractive Countries........................................................................................................... 18
National Advantage Diamond Analysis ............................................................................................. 28
Conclusion ......................................................................................................................................... 32
V. Industry Analysis ........................................................................................................................... 32
Industry Definitions........................................................................................................................... 32
Why Incubators and Early Stage Investment? .................................................................................. 33
Business Incubation in SSA ............................................................................................................... 35
Private Equity in SSA ......................................................................................................................... 36
Size and Growth Rates ...................................................................................................................... 37
Value Chain Analysis ......................................................................................................................... 41
3
4. DRAFT
Conclusion ......................................................................................................................................... 44
VI. Next Steps ................................................................................................................................. 44
VII. Sources ...................................................................................................................................... 45
VIII. Appendices ................................................................................................................................ 46
List of African Small Business Incubators.......................................................................................... 46
List of Private Equity Providers in Africa ........................................................................................... 49
4
5. DRAFT
I. The African Development Context
Introduction – The Need for Action in Sub-Saharan Africa
There are three primary challenges for society, and for our generation – the threat of terrorism and
the need for nuclear non-proliferation, containing climate change, and eradicating extreme poverty.
While it is more convenient to discuss the amelioration of extreme poverty, our goal must be clear –
to ensure that no human being must suffer the indignities of living on less than $1.25 per day.
According to the World Bank’s World Development Indicators 2010, the world population stood at
6,697,300,000 in 2008, and one in four, or 1,374,000,000 have been doing just this.1 These people
face a daily fight to meet basic survival needs, such as adequate nutrition, uncontaminated drinking
water, safe shelter and access to basic health care.2
In Sub-Saharan Africa just over half the population lives in this extreme state of poverty, the highest
poverty rate for any world region. Not only do these people live at subsistence level, but they are in
countries of low economic development – there are also very low education and health standards.
Sub-Saharan Africa, as a region, is the world’s largest collection of countries of Low Human
Development. In fact, according to the UN’s Human Development Report 2010, at present, there are
just over 1 billion people living in countries with these poor conditions, and just over 80% of them
live in Sub-Saharan Africa.3
Context – Global Development Efforts
Global development efforts, or targeted interventions to improve the livelihoods of people living in
poverty, are said to have started with the 1944 establishment of the U.S.’s Marshall Plan and the
establishment of the World Bank and International Monetary Fund at the Bretton Woods
Conference.4 Since their inception it is estimated that $1 trillion5 has been spent in private-, civil-,
and public- sector activities.6 Although there are clearly many programs targeting poverty in
developed countries, “global development” efforts are generally regarded as those focused
specifically on the poor living outside North America, Western Europe and developed Asia. These
efforts focus on three objectives: 1) to increase the availability and widen the distribution of basic
life-sustaining goods; 2) to raise the levels of living; and 3) to expand the range of economic and
social choices.7
It is encouraging to note that there have been large improvements in alleviating poverty. To put
today’s situation into context, in 1820, at the dawn of the industrial revolution, it is estimated that
75% of humanity lived in these conditions of poverty8. In short, technology improvements that have
enabled mass production, instantaneous transmission of information, and global trade have also
lifted billions out of a state of poverty.
1
World Bank (2010), p. 64 and p. 92. $1.25/day poverty population and rates are based on 2005 estimates.
2
Sachs (2005), p. 56
3
UN (2010), p. 187
4
See Führer (1996).
5
Moyo (2009), p. xix
6
See Fickett (2010), pp. 8-11, for further discussion on the background of economic development in Sub-
Saharan Africa.
7
Todaro (2006), p.22
8
See http://en.wikipedia.org/wiki/Poverty_reduction
5
6. DRAFT
Measuring Development Progress in Sub-Saharan Africa
For those that have not escaped extreme poverty, coordinated international intervention improved
dramatically with the establishment of the Millennium Development Goals in 2000. Over the last
ten years, through the global pursuits of these goals, it has been found that the achievement of
these standards of living improvements was made easier in states experiencing economic growth, as
compared to stagnant states; and that solutions in one state or region do not easily convert to
others.9 As a result of these efforts, (since 2000) 37 million more children have been able to attend
and complete primary school; 14 million children have been vaccinated against the measles; and the
number of children (under age 5) dying has fallen from 10 million per year to 8.8 million per year.
Four out of five people in developing countries now live in states that have attained gender equality
in primary and secondary education; and seven out of ten people in developing countries live in
states that have halved the proportion of people without access to clean drinking water.10
Economic growth remains strong in many developing countries, and achieving the Millennium
Development Goals is within reach, despite setbacks incurred as a result of food crises, the financial
crisis, and the resulting economic downturn. However, there is still much progress to be made in
assisting the developing world in lifting their standards of living. 11 Only 16% of the developing
world’s population live in countries where the proportion of people without access to basic
sanitation has been halved. At present, seven out of ten countries are off-track to meet this goal in
2015. The slowest progress has been in addressing childhood malnutrition – 56% of the developing
world population lives in the 102 countries that are unlikely to attain this goal.12
While the global numbers are encouraging, reaching the Millennium Development Goals in Sub-
Saharan Africa is off-track in some regards. In the region, higher unemployment, falling incomes and
lower migrant remittances have slowed progress towards reaching the MDGs.13 Those areas
requiring most attention for SSA, include:
The proportion of people living on less than $1.25/day has only decreased from 58% to 51%;
Gender equality in education has improved at primary school level, but has fallen at
secondary and tertiary levels;
Giving birth in Sub-Saharan Africa is especially risky, where 46% of women deliver without
skilled care;
The spread of HIV appears to have stabilized, and more people are surviving longer (but
correct transmission knowledge among the 15-24 age group is worst in Sub-Saharan Africa ;
Forested area as a percentage of land area, has fallen from 31% to 28%, while billions of
metric tons of carbon dioxide emissions have been increasing; and
Overseas development aid continues to rise, but Africa has been short-changed.
Fortunately, progress has been made regarding:
Primary school enrolment ratio for 1998-99 was 58%, and has improved to 76%; and
The under-5 mortality rate has fallen from 184 per 1,000 births, to 144 (but is still the
world’s highest incidence rate).14
9
World Bank (2010), pp. 1 - 3
10
Ibid.
11
UN (2010b), pp. 1-3
12
Ibid.
13
IMF (2010), pp. 3 – 14
14
See UN (2010b).
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Conclusion
Efforts to address progress in these areas are undertaken by a wide array of development
stakeholders, including: inter-governmental organisations, private sector corporations, civil-sector
NGOs, and government agencies. In brief, their efforts can be categorized as: 1) Working at a
macro-policy level to influence politicians and regulators to create ecosystems more conducive to
economic growth that facilitates poverty alleviation; 2) meso-level interventions, such as those
intended to construct and augment industry value chains or other community support systems; and
3) micro-level programs to support individuals, their families or their businesses.
Note: For further discussion on global development in Sub-Saharan Africa, please see Fickett (2010): Development
Stakeholders, pp. 5-7; Economic Development in Sub-Saharan Africa, pp. 8-11; and Private Investment and Economic
Growth, p. 11.
Economic development, or the improvement of livelihoods for those who most need it, has come as
the result of government policy to enable growth in the private sector. More economic opportunity
has generally meant higher incomes, better education and better health care. However, the rising
tide of economic activity does not lift all ships, and there are many cases of those left behind – both
individuals in countries which have improved, as well as whole nations that have struggled to
improve conditions for their populations. This resultant inequality has been the driving force behind
sizeable efforts by many stakeholders. These groups from the private-, civil- and public-sector have
sought to address the challenges of laggard countries through interventions to spur development
which addresses these inequalities in standards-of-living. Historic efforts in parts of Asia and Latin
America have been commended as largely successful in improving the livelihoods for hundreds of
millions. However, Sub-Saharan Africa in particular, still faces arguably the largest challenges in
improving livelihoods. The nature of the development challenges in SSA range from poor access to
income-generating economic activity – to low access to education – to low levels of health care. We
appear to be on the cusp of a large wave of new economic growth in SSA, one which has the
potential to make tremendous gains in addressing these inequalities at their most extreme, and one
which necessitates concerted effort to direct benefits to those that are in most need.
II. African Economy and Other Macro-Factors
Resiliency and Growth
Although Sub-Saharan Africa is clearly facing a range of developmental issues regarding the
conditions in which people live, there is also much cause for enthusiasm related to the region’s
prospects for future improvements.
2010-2020 is likely to be the first time since the industrial revolution that developing countries add
more to global economic growth than developed countries15, and Africa will play a leading part in
this growth. Africa (including North Africa) has gross domestic product of $1.6 trillion, roughly the
size of Brazil or Russia.16 The IMF predicts a strong re-bound for Sub-Saharan Africa, with a 5%
growth rate for 2010 and 5.5% for 2011. For most countries in the region, this will mean a return to
15
McKinsey (2010), p. 4
16
Ibid., p. 11
7
8. DRAFT
their pre-crisis level. In fact, only developing Asia is set to outpace Sub-Saharan Africa’s growth.17
The Emerging Market Private Equity Association concurs, stating, “Sub-Saharan Africa represents
one of the most dramatic growth stories among emerging markets.”18
The outlook for 2011 and beyond is promising. Growth is expected to accelerate to 5.5%, and no
country is expected to have negative growth in 2011 (a rare historic occurrence).19 Across the
region, fiscal balances are expected to improve. Government debt-to-GDP is expected to rise,
however deterioration should be mild due to anticipated debt relief, and improved tax revenues.
Only a slight deterioration in the external account balances is expected as demand is expected to fall
slightly, and little change in currency reserve positions is expected.20
Economic Growth Drivers
The region’s growth is explained by several factors. First, policy changes of the last decade are
making a difference. Political commitment has resulted in stronger fiscal and monetary stability,
investments in infrastructure and education, and increases in trade.21 Second, Africa (including
North Africa) has been helped by post-crisis global trade, and a rebound in commodity prices.22 The
increase in global trade has been focused on faster-growing geographic segments of the global
economy – China, Latin America and developing Asia.23 Also, economic activity is rebounding due to
a resurgence in mining and demand for consumer and capital goods.24 Third, capital flow changes as
a result of the financial crisis and the broader economic downturn are mixed. The slowing of global
Investment Trends in Sub-Saharan Africa
• Half of the 2010 inward FDI flows of $1.2 trillion now go to developing and
transition economies
• With 5.3% of global inward FDI, SSA is the smallest region for receiving investment,
and is expected to remain so through 2012
• 2009 FDI flows to Africa fell 19% to $59 billion, the first decrease in a decade
• In 2009 outward FDI from Africa contracted by 50% to $5 billion
• The pre-crisis level of FDI is not expected to be reached again until 2012, with an
estimate at $1.6 - $2 trillion
• The ten year annualized return for the Africa composite index is 13.8%, compared
with -1.0% for the Dow Jones and 7.3% for the MSCI Emerging Markets index
Source: UNCTAD, EMPEA
17
IMF (2010), pp. 3 - 14
18
EMPEA (2010), p. 11
19
Ibid.
20
Ibid.
21
McKinsey (2010), p. 37 - 39
22
OECD (2010), pp. 7-9
23
IMF (2010), pp. 3 - 14
24
Ibid.
8
9. DRAFT
capital markets resulted in weaker Foreign Direct Investment (FDI) fell, especially in non-extractive
industries (see below).25 However, the outlook for FDI into the ‘higher value’ services and
manufacturing industries is promising, as governments enact investment-friendly policy frameworks.
Interestingly, existing investments earn returns 2/3 higher than those in China, India, Indonesia and
Vietnam.26 Weaker demand and higher unemployment outside Africa reduced worker remittances,
while overseas development assistance (ODA) has generally held up. Fourth, past macro-economic
prudence has enabled expansionary fiscal and monetary.27 Finally, Africa has a range of longer-term
factors which demonstrate large expansionary headroom - large untapped natural resources (of
greater value when considered in terms of rising commodity prices), growing populations with
increasing levels of discretionary income, potential in hydro and solar power due to geography, and
potential to displace Asia as the low-cost manufacturing hub, given proximity to European and North
American consumers, long coastlines, and wage dynamics.28
Risks to Economic Growth
Downside risks to the growth scenario, in the short term, include:
Weakening of global demand;
Depression in commodity prices, or increased price volatility;
Weakened investment due to higher costs of capital;
Shortfalls in overseas development aid due to developed country fiscal pressures; and
Localized conflict, financial system deterioration, poor public policy changes or natural
disasters. 29
Additional Macro-Factors
The following table illustrates a range of other macro-factors of interest when considering African
potential for economic growth and for the alleviation of African poverty (for further discussion on
trends as they impact African entrepreneurship, please see section IV):
Factor Source
Economic
Increasing economic diversification, with agriculture, wholesale and McKinsey
retail, transportation, telecommunications and manufacturing
accounting for 67% of growth between 2000 and 2008
Increasing demand from developing countries for African resources in Accenture
timber, agriculture, fresh water and mineral deposits
Large oil-exporting and middle-income countries have faced increases in IMF
unemployment, but less significant than that experienced in developed
markets
As the financial crisis unfolded, governments were able to enact counter- IMF
act decreasing investment inflows with higher fiscal spending, and
monetary rates were lowered where possible
Capital inflows into Africa (including North Africa), have increased from McKinsey
$9B in 2000 to $62B in 2008 – relative to GDP, comparable to China
25
OECD (2010), pp. 7 - 9
26
Collier (2010), p. 61 - 63
27
See IMF (2010), pp. 3 – 14, McKinsey (2010) p. 4
28
Accenture (2010), p. 5 – 7; Collier (2010), pp. 61 – 63; and McKinsey (2010), p. 13
29
Downside risks drawn from OECD (2010), p. 7 – 10; McKinsey (2010), p. 11; and IMF (2010), p. 14 - 16
9
10. DRAFT
Capital flows are increasing due to intra-Africa trade, and that African Accenture
traded companies enjoy ROIC that is 65% higher than those in China,
Vietnam and India.
Demographics & Social
Increasing urbanization and changes in income have resulted in an Accenture
emerging African middle class, representing 35% of the population
In 1980 20% of the population lived in cities, it’s now approximately 40% McKinsey
- roughly comparable to China and India. By 2030 it is expected to rise to
50%, and the top 18 cities are expected to have combined spending
power of $1.3 trillion.
In 2000 59M African households had income of $5000 or more; in 2014 McKinsey
it is expected to rise to 106M households
Africa already has more households with over $20,000 in annual income McKinsey
than India
Work patterns have changed, as the services industry now makes up Accenture
more than 40% of Africa’s GDP
By 2040 Africa is expected to have a workforce of 1.1 billion, larger than McKinsey
China or India
Tertiary educational enrolment have grown at 12% since 1975, but Accenture
challenges remain to stem graduate emigration
On average, Africans are half as expensive to employ as their counter- Accenture
parts in Latin America, Asia and Central Europe
Political & Regulatory
African governance is improving, with over 20 countries encouraging McKinsey
greater political participation since 1989.
Continental coordination and trade are improving though the African Mo Ibrahim
Union, the New Economic Partnership for African Development and Foundation
regional trade blocs
Of Africans surveyed across 19 countries – 65% hold community Mo Ibrahim
meetings; 55% were active in joining others to raise issues; and 62% Foundation
believe they should question leaders’ actions
Almost every African nation has an independent media Mo Ibrahim
Foundation
Privatization of state-owned enterprises, removal of trade barriers, McKinsey
strengthened regulatory and legal systems have all increased
attractiveness of inward FDI
Nigeria has led the region in privatization—the World Bank estimates Emerging
that between 2000 and 2008, Nigeria privatized 105 enterprises valued Markets Private
at nearly US$6.5 billion. Ghana privatized seven enterprises valued at Equity
US$1.1 billion and South Africa saw 13 enterprises privatized for US$780 Association30
million in the same time period.
Cultural
Cultural variation between and within countries is significant – with Africa Guide31
performance and celebration customs, and traditional visual arts and
crafts focused on family and ethnic groups
Strong linguistic heritage with over 2,000 indigenous languages. Official Wikipedia32
languages in many countries tied to European colonialism.
30
See EMPEA (2010), p. 12
31
See http://www.africaguide.com/culture/index.htm
32
See http://en.wikipedia.org/wiki/Languages_of_Africa#Official_languages
10
11. DRAFT
Primary cultural trends, include: reverse innovation, growth in mobile Globalpost.com33
connectivity, rise of the African creative class, the Africa brand and
related tourism, the rise of African / African-American initiatives, and
increased trade and investment with China and India
Technology
Productivity is improving, currently averaging 2.% growth since 2000, McKinsey
based on high mobile phone penetration rates, increasing competition
and growing economies of scale
Mobile phone penetration rate is currently at 50%, is among the world’s Economist
fastest growing; and is creating unique innovations such as mobile
banking and electronic stored value
Kigali recently announced its plans to for ubiquitous wireless internet IT News Africa
access, at an investment of $7.66M
Increasing broadband connectivity is driving growth in African Accenture
outsourcing businesses
Reverse innovation and the rise of emerging market consumers are Accenture
placing new demands on traditional consumer products companies in
developing low-cost/high-quality offerings that meet local needs, and in
selling to these consumers through unfamiliar channels
Conclusion
Despite the development challenges discussed in section II, there are significant predictions for
economic growth in SSA. It has been demonstrated that SSA is returning to pre-crisis trends, and will
rival the established BRICs as an engine for post-crisis growth. This economic growth is driven by:
macro-economic stability, pro-investment/pro-business policy environments, fairly favorable capital-
flow dynamics, and a range of favorable geographic and demographic factors. The challenge
remains how to harness this forthcoming wave of activity to benefit the poor. Work in
developmental entrepreneurship, including systems approaches, inclusive markets approaches, and
sustainable livelihoods approaches looks to provide an answer. If this work offer the design of the
‘vessel’ by which we will ride this economic growth wave,34 then impact investing provides the
engine by which the vessel can be powered to create exponential impact in poverty alleviation.
III. African Entrepreneurship and Innovation
Following the G20 summit on November 15, 2008, the leaders of the world's largest economies
issued a statement explaining how they intended to restructure the world's economic architecture.
On the first page of this statement, they stated:
“Our work will be guided by a shared belief that market principles, open trade and investment
regimes, and effectively regulated financial markets foster the dynamism, innovation, and
entrepreneurship that are essential for economic growth, employment, and poverty
reduction.”35
33
See http://www.globalpost.com/webblog/commerce/top-6-african-business-and-culture-trends-watch-2010
34
See Fickett (2010), pp. 3 – 5 for further elaboration on developmental entrepreneurship in the academic
literature.
35
Klapper et. al. (2009), p. 2
11
12. DRAFT
The OECD defines “entrepreneurship” as the phenomenon associated with enterprising human
action in pursuit of the generation of value through the creation or expansion of economic activity,
by identifying and exploiting new products, processes or markets. It is essential for the continued
dynamism of the modern market economy and a greater entry rate of new business can foster
competition and economic growth.36 Specifically, entrepreneurship, or the creation of new private-
sector, profit-generating businesses, has been recognized as:
A key catalyst for creating new technologies, products, processes and services;
An engine by which financial value is created through high potential, high growth
companies;
That financial value supports significant job creation; and
Entrepreneurs are increasingly identifying new models for creating social impact, in areas
such as housing, health care, education, the arts, and poverty alleviation. 37
Global Entrepreneurship
Globally, entrepreneurship is primarily measured through the Global Entrepreneurship Monitor
(GEM) and the World Bank Group Entrepreneurship Survey (WBGES) dataset. The former captures
early-stage entrepreneurial activity and entrepreneurial intent, especially in the informal sector;
while the latter captures formal business registration.38 Recently, the GEM found that the 2009
economic downturn, expectedly, reduced the number of people initiating new ventures for two-
thirds of the 54 countries surveyed.39 Also, GEM recently found: 1) Across countries,
entrepreneurial attitudes and perceptions vary widely and are positive views are generally related to
higher social status and higher media visibility for successful entrepreneurs; 2) development; 3)
Countries with high levels of employment protection exhibit lower start-up rates; 4) Entrepreneurial
institutional supports are generally more important within countries at more advanced phases of
economic development; and 5) the economic downturn has resulted in decreased informal/angel
investing, as well as venture capital investments in nearly all markets. According to the findings of
the WBGES: 1) In developed countries four new firms register for every 1,000 people in the labor
force, while there is less than one for countries of medium and low development; 2) Data show that
dynamic business creation occurs in countries that provide entrepreneurs supportive policy and
regulatory environments; 3) Concurring with the GEM, almost all countries noticed a drop in new
business registration as a result of the global economic downturn; and 4) Countries in which the
financial services sector plays a larger role in the domestic economy, experienced sharper declines in
new business formation.40
Sub-Saharan African Entrepreneurship
Like other regions of the world entrepreneurship in Sub-Saharan Africa is a key component of
economic activity. Since 2004 the WBGES has captured the creation of 2,690,818 new firms in SSA,
36
See Klapper et al. (2007), p. 2; Klapper, Laeven and Rajan (2007); Djankov, La Porta, Lopez de Silanes and
Shleifer (2002).
37
Timmons and Spinelli (2003), p. 19. Also, see Global Entrepreneurship Monitor (2009), p. 7, in relation to
social entrepreneurship. GEM found that in the 49 countries studied 1.8% of the adult population was
engaged in social entrepreneurial activity.
38
Acs et. al (2007), p. 11
39
Global Entrepreneurship Monitor (2009), 5 - 7
40
See World Bank (2010b).
12
13. DRAFT
or 14% of the 18.7 million started globally.41 As SSA’s portion of global economic output is much
smaller at 1.52%42, arguably SSA is beginning to generate a ‘more than their share’ of the world’s
small businesses. Moreover, this does not account for the substantial portion of informal economic
activity in SSA, which is not captured by the WBGES survey. A 2007 study of Micro, Small and
Medium Enterprises (MSMEs) by the International Finance Corporation, included eight SSA
countries, and captured 4.5 million such businesses, or 27.5 MSMEs per 1,000 Sub-Saharan
Africans.43 Additionally, these MSMEs were shown to contribute 38% to 66% of their respective
country’s employment.44 Indeed, McKinsey recently agreed with this assessment of the importance
of the entrepreneurial sector in Africa’s growth, stating, “Entrepreneurship is seen as a significant
component to private sector growth (in Africa).”45
Alleviating Poverty through Entrepreneurship
A range of initiatives under numerous headings have been initiated to harness the power of private
markets, and more specifically, entrepreneurship, to alleviate poverty – “Pro-poor growth”,
“Inclusive Markets”, “Sustainable Livelihoods”, “Enterprise Development”. In short, developmental
entrepreneurship is the study of utilising the establishment of small businesses as a lever to alleviate
poverty in countries with low levels of economic development. There is a significant body of
research supporting the assertion that new ventures can be used as a vehicle for poverty alleviation.
The OECD promotes the “central role” of the private sector in poverty alleviation46; while the UN
Development Program states, “The poor harbor a potential for consumption, production,
innovation, and entrepreneurial activity that is largely untapped.”47 They also site many examples of
businesses that are creating “value for all” by buying from, and selling to, the poor.48 Finally, the
WBGES shows relationships between entrepreneurial activity and indicators of economic growth and
development.49
Note: For further discussion on developmental entrepreneurship and poverty alleviation in SSA through
entrepreneurship, please see Fickett (2010): Economics and Management Literature, pp. 3 – 5; Poverty Alleviation
through Developmental Entrepreneurship, pp. 12 – 13; and Research on Addressing Developmental Entrepreneurship
Opportunities, pp. 13 – 17.
IV. Country Analysis
Framework for Determining Attractive Markets
Sub-Saharan Africa is a diverse collection of 46 countries, and each has a unique policy environment,
structure of economic output, technology landscape and social profile. As such, it is necessary to
understand which countries are the most conducive for developmental entrepreneurship ventures.
41
See WBGES Dataset 2010 available at:
http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/0,,contentMDK:22731215~pagePK:642
14825~piPK:64214943~theSitePK:469382,00.html
42
World Bank (2010), p. 34
43
See IFC dataset on MSMEs available at: http://www.ifc.org/ifcext/sme.nsf/Content/Resources
44
Ibid.
45
McKinsey (2010), p. 69
46
OECD (2006), pp. 14-15, 20
47
UN Development Programme (2008), pp. 1-12
48
Ibid
49
Klapper, et. al. (2007), pp. 15 – 17, 32
13
14. DRAFT
In consideration of a determination of which national markets are most attractive, it is first
necessary to define the two primary dimensions along which a developmental entrepreneurship
opportunity should be measured – social and financial (see figure 1). First, it must provide a
demonstrable impact in the alleviation of poverty in the markets in which it operates, through job
creation, income increases, direct standards-of-living improvements related to the products or
services provided, secondary effects related to the use of local supply chain partners, or secondary
effects related to livelihood impacts – increased educational enrolment or health improvements for
the families of indigenous entrepreneurs. Also, the given venture may create tertiary impacts, such
as improved perceptions of entrepreneurship, spill-over effects related to knowledge capital, and
improved entrepreneurial networks and role models. Second, a given venture must generate
financial returns commensurate with its capital requirements and capital structure. In order for the
venture to be self-sufficient over the long-term, it must create enough economic value to repay
creditors and/or generate risk-adjusted returns for providers of equity capital. Initiatives reliant on
grants and subsidies are inherently time-bound due to the nature of the financing. Developmental
entrepreneurship ventures are self-sustaining.
Note: For further discussion on the social and financial components of developmental entrepreneurship opportunities,
please see Fickett (2010), pp. 20 – 24.
Illustrative
Not-for-Profit and Most Attractive
Social Return Dimension
Public Sector Space Opportunities
Least Attractive
Private Sector Space
Opportunities
Financial Return Dimension
Figure 1: Mapping Social and Financial Returns
Financial Return Dimension
The WBGES demonstrates a range of considerations to utilize when comparing countries’
conduciveness for entrepreneurial activity. First, the quality and efficiency of the legal, regulatory
14
15. DRAFT
and governance environments are the primary determinants of entrepreneurial activity.50
Interestingly, Ghana and South Africa have recently been found to be less corrupt than China, India
and Brazil.51
Second, business density, or the number of registered business per member of the labor force, is
another key indicator of entrepreneurial conduciveness.52 Third, the Doing Business53 rankings are
strong indicators of business density and entry, or the number of new businesses registered.54
Forth, and intuitively, the cost of starting a business as a percentage of per capita Gross National
Income (GNI) is also a key factor in entrepreneurial activity. For every 10 percentage points
decrease in the cost of starting a business (as a percentage of per capita GNI), the business entry
rate will increase by 1%.55 Fifth, the log Gross Domestic Product (GDP) per capita and domestic
credit accessibility are both strongly correlated with business entry, however no causal relationship
has been established.56 Concurring with these points, the IFC recently found that businesses are
created at a faster rate in countries with good governance, a strong regulatory and legal system, low
corporate taxes, and less administrative procedures when dealing with public-sector agencies.57
The extent to which the national environment is supportive of entrepreneurship and innovation is
another important dynamic in relation to the attractiveness of a given country. According to a
recent report of the OECD, “the major function of SMEs and entrepreneurship in innovation is the
introduction of advances in products, processes, organizational methods and marketing techniques
into the economy.”58 Innovation drives the creation of jobs and economic growth; and innovation
policy seeks to foster supportive environments. It happens in developed and developing countries
alike; and innovation policy must take into account local conditions, economic inequalities,
demographic challenges, and activity of the informal sector.59 The European Union Lisbon Treaty
identified three factors in the uptake of new technology – R&D expenditure, structural reforms, and
market de-regulation; and subsequently, a 2007 African Union summit adopted a science and
technology plan of action, with the New Economic Partnership for African Development (NEPAD)
overseeing a science and technology program.60 Furthermore, innovation is at the heart of economic
development, social welfare and protection of the environment – with the World Bank declaring,
“Innovation is the main source of increased performance, of getting more out of limited resources,
of finding new ways to use existing resources, and to mobilize people to produce better goods and
services.”61
The following table provides selected areas of African innovation by industry sector, including both
opportunities and recent innovations:
50
Klapper, et al. (2007), p. 2-3, 15 - 18
51
See Transparency International (2010).
52
Ibid.
53
See World Bank (2010c).
54
Klapper, et. al. (200&), pp. 18 - 21
55
Ibid.
56
Ibid.
57
IFC (2010), p. 1
58
OECD (2010b), p. 32
59
OECD (2010c), p. 9 - 12
60
See OECD (2009), p. 81; OECD (2010c), p. 9 - 12
61
World Bank (2010d), pp. 22 - 24
15
16. DRAFT
Innovation Instances and Opportunities Source
Agribusiness
Agricultural productivity improvements provide a significant opportunity, as World Bank
productivity is the primary driver of poverty reduction, as livelihood impact is (2009)
gauged to be 4 times greater in agriculture than other sectors, and as crop yields
in SSA have remained stagnant since the 1960s. 70% of people live in rural
communities, and 90% of rural populations depend on agriculture for their
primary source of income.
Research in high-yield seedlings through Cameroon’s Institute of Agricultural Accenture
Research for Development
Financial Services
Safaricom Ltd., with its M-PESA offering, allows customers to send money by Accenture
using mobile SMS services. There are currently 6 million users. There are now
similar services in Tanzania, Uganda, Rwanda, Sierra Leone, South Africa and
Somalia.
South Africa’s First National Bank has introduced an eWallet solution. Accenture
Mobile banking product enabling Kenyan farmers to purchase insurance against Accenture
poor weather conditions and low crop yields.
Aquaculture
Aquaculture has a demonstrated capability to reduce poverty, improve World Bank
livelihoods, and be a significant engine of growth, yet the fisheries sector is (2007)
poorly planned, inadequately funded and neglected by governments.
Health Care
Introduction of telemedicine call centers and mobile clinics McKinsey
Shifting first-line medical inquiries to nurse-practitioners to better utilize McKinsey
doctors’ capacity
Information & Communication Technologies
Introduction of solar powered internet kiosks in Kenya, Nigeria, Rwanda, and Accenture
Zambia.
Opportunities related to Africa’s position as the fastest-growing region for OECD (2009)
mobile phone use, and the only region where mobile phone penetration trumps
fixed-line prevalence.
Algeria, Botswana, Mauritius and Rwanda have stated ambitions of becoming OECD (2009)
regional ICT hubs.
The ability to capture an innovative idea, to translate that idea to a suitable offering, and to deliver it
to market in a profitable fashion is dependent upon the dynamics of the geographic and product
market, and the capabilities of the firm. Differences in total factor productivity account for roughly
half the differences in income across countries, and are generally associated with differences in
technological progress.62 A country’s ability to harness innovation is therefore a key element in the
determination of a country’s attractiveness for developmental entrepreneurship activities. Simply
put, the more innovation that is currently present in a given market, the more that there is likely to
be in the future.
There are several other factors which provide insight into a given country’s ability to support
entrepreneurship and innovation. One of the strongest determinants of entrepreneurial and
62
de Mel, et. al (2009), p. 23
16
17. DRAFT
innovation potential is the educational level achieved by the individual entrepreneur.63 It stands to
reason that a country with a higher proportion of its population achieving tertiary education, is more
conducive to innovation than one with a lower level of educational achievement. Also, as one might
expect, the extent to which a country invests in research and development activities is also positively
correlated to growth and innovation.64
International relationships through trade and receipt of inward FDI are also strong indicators of
innovation. The extent to which a country receives inward FDI, is a strong indicator of its ability to
support private-sector activity. According to Gorodnichenko et. al. vertical transfer of capabilities
from foreign to domestic firms and FDI spill-over are significant. .65 Two industries – infrastructure
and natural resources dominate as destinations for inward FDI, and along with activity in the
informal sector, are strong loci of innovation.66 Pressure from foreign competition has a positive
effect on innovation, as these firms are more likely to upgrade their product, acquire a new
technology, and obtain a new accreditation.67 Furthermore, globally engaged firms are larger, more
productive, more capital intensive, and pay higher wages than purely domestic firms. In short,
engaging in global supply chains, through either trade or receipt of investment, tends to spur
innovation.
There are a range of factors which serve as indicators of a given county’s conduciveness for
entrepreneurial activity, and these factors serve as the components for our ‘Business Viability Index’.
The economic factors include:
Market Size, as measured in 2008 GDP;68
Market Growth, as measured by a simple average of the 2009-2011 estimates of real GDP
growth;69
Global Competitiveness, as measured by the World Economic Forum’s Global
Competitiveness Index, including assessments of institutions, infrastructure, macro-
economic environment, health and primary education, higher education and training, goods
market efficiency, labor market efficiency, financial market development, technological
readiness, market size, business sophistication, and innovation;70
Attractiveness as an Investment Destination, as measured by 2008 inward FDI as a
proportion of GDP;71
Strength of Exporting Capabilities, as measured by the 2008 value of exports per capita;72
The political, legal and regulatory factors include:
Strength of Governance, utilizing an average of the World Bank governance indicators
across the six dimensions – voice and accountability, political stability and absence of
63
Ibid.
64
Ibid.
65
Şeker (2009), p. 2
66
OECD (2010c), p. 65 – 66, p. 83
67
Gorodnichenko et. al. (2009), p. 15, 28
68
Analysis conducted using data from UN (2010), p. 206 – 208.
69
Analysis conducted using data from IMF (2010), p. 72.
70
Analysis conducted using data from WEF (2010), p. 15.
71
Analysis conducted using data from OECD (2010), p. 252 – 253.
72
Analysis conducted using data from World Bank (2010), p. 238 – 241, p. 246 – 249.
17
18. DRAFT
violence or terrorism, government effectiveness, regulatory quality, rule of law, and control
of corruption;73
Ease of Doing Business, drawing from the World Bank’s Doing Business ranking, including
starting a business, dealing with construction permits, registering a property, getting credit,
protecting investors, paying taxes, trading across borders, enforcing contracts, and closing a
business74; and
Corruption Perception, as measured by Transparency International’s corruption perception
index.75
Social Return Dimension
The extent to which developmental entrepreneurship initiatives will create poverty alleviation
impact is by a more straight-forward set of factors. First, it’s necessary to work in an area in which
there are significant amounts of people living below the $1.25/day international poverty line.
Second, those countries in which levels of human development, including education and health care
provision, are lower provide greater opportunities to make a social impact. Utilising these two
factors, we have constructed our ‘Social Impact Index’:
Number of People Living on $1.25/day76; and
Human Development Index Value.77
Mapping Attractive Countries
Utilizing the Business Viability Index and the Social Impact Index, we have categorized the 46 SSA
countries accordingly. Please note, that the diagrams below also provide the size of the country’s
economy (bubble diameter is on a logarithmic scale), the bubble text indicates the 2010 estimate of
GDP growth, and the bubble color indicates the country’s level of human development (red=low,
yellow=medium, and green=high):
73
Analysis conducted using data from Kaufman et. al. (2010).
74
Analysis conducted using data from World Bank (2010c).
75
Analysis conducted using data from Transparency International (2010).
76
Analysis conducted using data from UN (2010).
77
Ibid.
18
19. DRAFT
100 Low Social Impact Potential
and Low Business Viability Climate
Ethiopia
8%
80
Social Impact Index
60
Guinea
Côte
3%
d’Ivorie
Sudan
3%
4.2%
40
Togo
Comoros 3.3% Mauritania
2.1% -1%
20 Congo
10.6%
Equatorial Guinea São Tomé
0.9% and Príncipe
4.5% Gabon
4.5%
10 20 30 40 50 60 70 80 90 100
Business Viability Index
Note: Seychelles and Eritrea social impact index based on GNI per captia due to lack of data.
Mauritania size of economy, Mauritania 2009 growth rate est. and Sudan 2009 growth rate est. based on CIA Factbook data.
High Social Impact Potential
and Low Business Viability Climate
Democratic Rep.
100 of Congo
Niger 5.4%
3.5%
Zimbabwe
Eritrea 5.9%
1.8%
80
Burundi Chad
Guinea-
3.9% 4.3%
Bissau Sudan
3.5% 4.2%
Social Impact Index
60 Guinea Angola
Sierra
3% 5.9%
Leone
4.5%
Central African
Republic
40
3.3%
20
0 10 20 30 40 50 60 70 80 90 100
Business Viability Index
Note: Seychelles and Eritrea social impact index based on GNI per captia due to lack of data.
Mauritania size of economy, Mauritania 2009 growth rate est. and Sudan 2009 growth rate est. based on CIA Factbook data.
19
20. DRAFT
100 Low Social Impact Potential
and High Business Viability Climate
80
Social Impact Index
60
Kenya
4.1% South Africa
Cameroon 3%
40 Lesotho
Benin 2.6% Gambia
5.6%
2.8% 5%
Botswana
6.6%
Swaziland
20
2%
Cape Verde Namibia
4.1% 4.4%
Mauritius
Seychelles
3.6%
0.7%
0 10 20 30 40 50 60 70 80 90 100
Business Viability Index
Note: Seychelles and Eritrea social impact index based on GNI per captia due to lack of data.
Mauritania size of economy, Mauritania 2009 growth rate est. and Sudan 2009 growth rate est. based on CIA Factbook data.
High Social Impact Potential
and High Business Viability Climate
100
Mozambique
Ethiopia 6.5% Tanzania
8% Nigeria 6.5%
80 7.4%
Burkina
Zambia
Faso
6.6%
4.4% Malawi Senegal
Social Impact Index
60 6% Rwanda 4%
Mali 5.4%
5.1% Ghana
Angola Uganda
5%
5.9% 5.8% Madagascar
-2%
40
Liberia
6.3%$
20
0 10 20 30 40 50 60 70 80 90 100
Business Viability Index
Note: Seychelles and Eritrea social impact index based on GNI per captia due to lack of data.
Mauritania size of economy, Mauritania 2009 growth rate est. and Sudan 2009 growth rate est. based on CIA Factbook data.
20
21. DRAFT
To determine a group of five countries for closer analysis for factors more specific to entrepreneurial
conduciveness, we utilize the following diagram:
High Social Impact Potential and
Social Impact Index High Business Viability Climate
Mozambique
Ethiopia
Burkina Faso
Nigeria Senegal
Tanzania Zambia
Uganda
Liberia Ghana
Malawi Rwanda
Angola Mali
Madagascar
Business Viability Index
The following tables illustrates the data gathered for the five priority countries and for South Africa
(which serves as a point of comparison given its economic leadership in SSA, including
supplementary factors, not included in the business viability index and social impact index78:
78
References for all data provided in the tables that follow are available upon request.
21
22. DRAFT
South Africa Mozambique Ghana Senegal Zambia Rwanda
Economic Landscape
Market Size - 2008 GDP 292.2B 18.7B 34.1B 21.9B 17.1B 10B
Market Growth - Simple
average of the 2009 - 2011
estimated real GDP growth
rates (arrow indicates trend) 1.6↑ 6.8↑ 6.3%↑ 3.5↑ 6.4→ 5.1↑
Global Competitiveness -
World Economic Forum
Global Competitiveness
Index 4.32 3.32 3.56 3.67 3.55 4.00
Attractiveness as an
Investment Destination -
2008 FDI for every $10,000
of 2008 GDP $183 $313 $621 $322 $549 $103
Stength of Exporting
Capabilities - 2008 value of
exports per capita $1,913 $138 $308 $286 $428 $59
Economic Diversification -
2008 manufacturing and
services as a percentage of
GDP 82% 61% 47% 76% 45% 52%
23. DRAFT
South Africa Mozambique Ghana Senegal Zambia Rwanda
Economic Landscape
Non Resource Non Resource Non Resource Non Resource Resource Rich- Non Resource
IMF Classification Rich-Coastal Rich-Coastal Rich-Coastal Rich-Coastal Non Oil (copper) Rich - Landlocked
2009 Real Per Capita GDP -
2000 PPP, 2000 exchange
rates $3,691 $395 $347 $522 $436 $345
Consumer prices / inflation -
annual percentage change
Supplementary Considerations
2009 7.1% 3.3% 19.3% -1.7% 13.4% 10.4%
2009 Overall fiscal balance -
percentage of GDP -5.3% -5.6% -9.8% -5.2% -3.2% -2.3%
2009 Overall government
debt - percentage of GDP 30.8% 29.3% 66.5% 32.0% 27.7% 20.2%
2009 Trade Balance 0.1 -14.1 -14.4 -19.2 7.1 -14.7
2009 Reserves - months of
imports goods and services 4.6 4.7 2.7 4.5 4.1 5.1
Highest marginal corporate
tax rate 35% 32% 25% .. 35% ..
UNCTAD Outward FDI
performance index 2005-
2007 (measures importance
of a country's outward FDI
relative to its proportion of
global GDP. (higher = greater
importance) 0.534 0.001 ... ... 0.014 0.139
23
24. DRAFT
South Africa Mozambique Ghana Senegal Zambia Rwanda
Legal, Regulatory & Political
Landscape
Strength of Governance -
Average of the World Bank
governance indicators
percentiles across six
dimensions 59.86 45.20 55.58 40.78 40.68 38.76
Ease of Doing Business -
Index Components
World Bank Doing Business
2011 Rank amongst other
Sub-Saharan African states 2 13 5 23 7 4
Corruption Perception -
Transparency International
corruption perception index 4.5 2.7 4.1 2.9 3 4
Value of 2000-2008
Supp.
privatized enterprises
(previously semi-state) $780 billion ... $6.5 billion ... ... ...
Business Viability Index 59.7 69.6 84.6 76.1 76.8 72.0
24
25. DRAFT
South Africa Mozambique Ghana Senegal Zambia Rwanda
Social Landscape
Component
Number of People living
below $1.25/day 12,759,000 16,732,000 7,020,000 4,087,000 8,101,000 7,430,000
Index
Human Development Index
Value 0.597 0.284 0.363 0.291 0.382 0.385
s
Dominant business language English Portuguese English French English French, English
Gross National Income at
PPP - 2008, Billion $ 476,200,000,000 17,200,000,000 30,900,000,000 21,700,000,000 15,500,000,000 10,800,000,000
Lowest 20% 3.10% 2.10% 5.20% 6.20% 3.60% 5.40%
2008 Population 48,700,000 22,400,000 23,400,000 12,200,000 12,600,000 9,700,000
Gini Coefficient 57.8 47.1 42.8 39.2 50.7 46.7
Bottom Quintile GNI per
Supplementary Considerations
capita $1,515.63 $119.02 $343.33 $551.39 $221.43 $300.62
Second Quintile GNI per
capita $2,737.91 $215.00 $647.05 $942.70 $479.76 $501.03
Third Quintile GNI per capita $4,840.23 $380.09 $977.18 $1,360.70 $787.30 $734.85
Fourth Quintile GNI per
capita $9,191.54 $721.79 $1,445.96 $1,956.56 $1,267.06 $1,091.13
Top Quintile GNI per capita $30,605.87 $2,403.39 $3,189.04 $4,082.09 $3,395.24 $2,939.38
Life expectancy at birth 52.0 48.4 57.1 56.2 47.3 51.1
Mean years of schooling 8.2 1.2 7.1 3.5 6.5 3.3
Social Impact Index 45.0 84.0 62.0 63.0 63.0 60.0
25
26. DRAFT
South Africa Mozambique Ghana Senegal Zambia Rwanda
Technology Landscape
Mobile and Fixed Line Phone
Subscriptions per 100 people 102 20 50 46 29.0 14
Population 50.5 24.3
Mobile and Fixed Line Phone
Subscriptions 51.5 12.2
Network Readiness Index
Global Rank 62 116 98 75 97.0 ...
2005-2007 Agriculture value
added per worker 2000 $ €3,077 €173 €378 €224 €232 €226
Improvements in Agricultural
Productivity - Difference
between 1990-92 and 2005-07
agricultural value added per
worker (in 2000 $) $928 $56 $26 -$27 $43 $33
R&D Expenditures as a % of
GDP 2000-07 0.96 0.50 … 0.09 0.03 ...
Measure of Relationships with
MNCs as a predictor of
innovation likelihood - exports
as a percentage of GDP 2008 35% 33% 42% 25% 37% 15%
Measure of Relationships with
MNCs as a predictor of
innovation likelihood - imports
as a percentage of GDP 2008 38% 46% 75% 47% 34% 31%
Role in the African Ministerial
Council on Science and Steering Steering Steering
Technology Secretariat Host Committee Committee AMCOST Chair ... Committee
26
27. DRAFT
South Africa Mozambique Ghana Senegal Zambia Rwanda
Demographic Landscape
Population between aged 15-64
/ Labor Force 31,655,000 11,872,000 13,572,000 6,588,000 6,426,000 5,335,000
Environmental Landscape
Environmental Commitment -
participation in major
international treaties in 1973-
2001 (of 9) 9 9 9 9 7 8
2007 Arable Land - hectares per
100 people 30.7 21.2 18.2 26.3 43.8 12.7
27
28. DRAFT
National Advantage Diamond Analysis
Utilizing Michael Porter’s framework for determining national advantage, we constructed the following table for in depth analysis of th five priority
the
countries:
South Africa Mozambique Ghana Senegal Zambia Rwanda
Factor Conditions
* A portion of
the $64M in
country-specific
funds, dedicated
to Angola,
Early Stage Private Equity Raised - Namibia and
January 2009 - July 2010 (in billions) $1,761.25m ... Ghana ... ... ...
Local pension funds investing in private
equity funds Yes ... Yes ... ... ...
*Has received
small-scale PE
attention as a
part of EAC
Early Stage Private Equity Invested $723m ... $20m ... ... investment
2009 Inward Foreign Direct Investment $5,696M $881M $1,685M $208M $959M $119M
Total Outward Foreign Direct Investment $1,584M $3M $7M $15M ... $14M
Access to debt finance - credit bureau
coverage 54.70% 2.2% public 10.3% private 4.4% public 3.0% private 0.7% public
Labor Force - Aged 15-64 (in millions) 31.7 7.2 13.6 6.6 6.4 5.3
28
29. DRAFT
South Africa Mozambique Ghana Senegal Zambia Rwanda
Likelihood to Innovate - Tertiary
enrolment ratio (% of tertiary school-age
population) ... 1.50% 6.20% 8.00% 2.40% 4.00%
Likelihood to Innovate - Population
having completed a tertiary degree 4.30% … … … … …
Entrepreneurial Talent - Labor
Productivity - GDP per person employed
% growth change 1990-92 vs. 2003-05 8.40% 9.20% 0.20% 440.00% 5.70% ...
Entrepreneurial Talent - Labor
Productivity - GDP per person employed
% growth 3.90% 6.20% 3.00% 3.40% 3.20% ...
Existing ICT Access - Internet users per
100 people 8.6% 1.6% 4.3% 8.4% 5.5% 3.1%
Existing ICT Access - Population covered
by mobile phone network 100% 44% 73% 85% 50% 92%
Estimate of the size of emerging middle
class with over $3,650 in annual income
(in millions) 24,350,000 224,000 936,000 1,464,000 756,000 97,000
Estimate of emerging middle class with
over $3,650 in annual income as a
percentage of the population 50.0% 1.0% 4.0% 12.0% 6.0% 1.0%
Demand Conditions
Total Businesses Registered, 2007 553,425 … … 1,000 ... 455
Total Business Density, number of adults
per registered business 57 ... ... 6,588 ... 11,725
New businesses as a percentage of total
registered businesses 7.47% ... … 2.30% ... ...
29
30. DRAFT
South Africa Mozambique Ghana Senegal Zambia Rwanda
Cost to start a business as a percentage
of income per capita 6.0% 13.9% 20.3% 63.1% 27.9% 8.8%
Number of MSMEs 900,683 ... 25,679 ... ... ...
MSME Density (MSMEs per 1,000 people
in the labor force) 28.5 ... 1.9 ... ... ...
Number of New Businesses - Annual
Average calculated over the last four
year's data available 35,195 ... 7,626 ... ... ...
Entry Density - New Business Entry per
captia for the most recent year available 0.77 (2009) ... 0.72 (2007) ... ... ...
Related and Supporting Industries
Composite measure of access to financial
services 46% 12% 16% 27% 15% 23%
Strength of Sciences and Technologies
Industries - ICT exports as a percentage
of total commercial services exports in
2008 14.7% 27.9% 24.8% 50.7% 9.1% 19.0%
GDP 276445 9846 16653 13273 14314 4457
Commercial Services exports as a
percentage of GDP 12394 488 1559 1097 297 326
Value of ICT exports 1822 136 387 556 27 62
Strength of Sciences and Technologies
Industries - ICT exports as a percentage
of 2008 GDP 0.7% 1.4% 2.3% 4.2% 0.2% 1.4%
Reliability of Power Supply - T&D losses
as a percentage of output 8% 14% 18% 25% 7% ...
Extent of transportation infrastructure -
percentage of roads that are paved 17.3 18.7 14.9 29.3 22.0 19
30
31. DRAFT
South Africa Mozambique Ghana Senegal Zambia Rwanda
Firm Strategy, Structure and Rivalry
Population 2008 (M of people) 31.7 7.2 13.6 6.6 6.4 5.3
New Trademarks Filed 29833 1240 61 ... 1159 238
New Patents Filed 5781 40 ... ... ... ...
Number of New Trademarks per 10,000
people in the labor force 9.42 1.73 0.04 ... 1.80 0.45
Number of New Patents per 10,000
people in the labor force 1.83 0.01 ... ... ... ...
Exit Robustness - Measures of stock
market development, number of listed
companies 411 ... 35 ... ... ...
Exit Robustness - Measures of stock
market development, market
capitalization of listed companies $805.2b ... $2.5b ... ... ...
Exit robustness - measures of stock
market development, stocks traded,
turnover ratio % 83.80% ... 2.00% ... ... ...
Johannesburg Stock Ghana Stock Lusaka Stock
Local stock exchange Exchange ... Exchange ... Exchange ...
Number of securities listed 334 ... 35 ... 22 ...
Concentration of Incubators 11 2 3 2 ... 2
32 local PE providers,
and 9 additional funds
Concentration of Early Stage Investors active in South Africa ... 2 ... ... ...
31
32. DRAFT
Conclusion
Five countries stand out as having the economic, political, legal, regulatory, technological, social and
demographic characteristics required to make optimal impact in poverty alleviation, while also being
conducive to supporting entrepreneurial ventures from a commercial perspective:
Rwanda;
Ghana;
Senegal;
Mozambique; and
Zambia.
Upon comparison of these five priority countries, Ghana’s strengths can be summarized, as follows:
Large market and growing market;
Relatively strong ability to attract inward investment, especially regarding an emerging private
equity market;
Strong governance regime, and is perceived to have relatively low levels of corruption;
Record of privatization of previously state-controlled enterprises;
Higher access to financial services, and specifically access to credit, for entrepreneurs;
Low corporate tax rate;
English speaking population, especially in conducting business;
Broadly, a better educated and larger labor force;
Strong technology and innovation landscape, with relatively high rates of multi-national
corporation participation in the economy, higher levels of trade, higher productivity in the
agricultural sector, and government commitments to promoting innovation;
Strength of existing entrepreneurial activity, especially regarding new patents and trademark
applications; and
Stronger market for venture exits.
Alternatively, Senegal demonstrates relative strengths in the following areas:
Significant economic diversification, including strong manufacturing and services sectors;
Higher consumer spending power, lower income inequality, and a larger emerging middle
class;
The low level of human development indicates that despite economic strengths, little has
been invested in health and educational infrastructure, and therefore a potential for strong
developmental impact;
Higher internet access and network readiness;
Strength of existing entrepreneurial activity; and
Related and supporting industries, such as financial services, ICT exports, power supply and
road infrastructure are all strong.
V. Industry Analysis
Industry Definitions
According to the National Business Incubator Association, "Business incubation is a business support
process that accelerates the successful development of start-up and fledgling companies by providing
33. DRAFT
entrepreneurs with an array of targeted resources and services."79 Early stage funding for our
purposes will be limited to equity investments – angel investment and venture capital.80 We define
our industry as ‘equity funding $5,000 to $500,000 in early stage, high social impact, high growth
entrepreneurs.’
Entrepreneurs typically progress through two inter-related processes associated with the launch of
their business. First, incubation involves a range of non-financial supports, which a new venture
utilizes to plan and launch the business. Second, the finance process includes all activities that a
venture undertakes in planning investment, securing funding, monitoring the elements of their finance
function (e.g. capital structure), and investor relationship management. We intend to assist out
entrepreneurs through both processes, as they progress through the following stages of establishing
and growing their businesses:
Incubation
FFF and Angel 1st and 2nd Stage Later Stage
Investment Venture Capital Venture Capital
Finance
Seed Capital Start-up Scale-Up
Milestone
Feasibility Study & Business Model Harvest
Business Plan Complete Proven
Figure 7: Generic Phases of Entrepreneurial Growth
Why Incubators and Early Stage Investment?
Entrepreneurs, through the new business ventures they create, are in the unique position of driving
economic growth that benefits entrepreneurs, their families, supply chain partners, and other
stakeholders. Of course, this is true for a lot of private sector players; however entrepreneurs also
have the latitude to design business models which also distribute the benefits of their activities across
broad segments of the population. We are firm in our commitment to local entrepreneurs, as they
are one of the strongest levers in the fight against poverty; and we are resolute in our support for
their efforts with the two most powerful tools available to us – incubator models and private equity
investment.
Incubators have a track record dating back to the 1960s, and have proven an important catalyst in the
development of successful new ventures. Incubators provide start-ups the support they need to
create jobs, and incubators have been successful in this regard. As a point of comparison, the U.S.
Department of Commerce Economic Development Administration recently found that incubators
create 20-times more jobs than do community infrastructure construction programs, and at 5% of the
79
See http://www.nbia.org/works
80
Entrepreneurs will undoubtedly also seek credit through micro-finance and other financial services providers.
33
34. DRAFT
cost.81 Firms that are provided incubator support are more likely to remain in existence. The U.S.’s
National Business Incubator Association (NBIA) estimates that in 2005 alone, North American
incubators assisted 27,000 start-ups, provided over 100,000 jobs, and supported companies whose
annual revenues totaled $17 billion.82
Access to financial capital is another critical success factor for entrepreneurs. FFF, or ‘friends, family
and fools’ and bootstrapping are coming forms of initial seed capital. In the former, entrepreneurs
borrow or solicit an equity investment from people with whom they are already well acquainted. In
the latter, entrepreneurs use their own personal savings and personal access to credit in order to fund
their venture. Another common form of funding is bank debt, and in developing countries,
microfinance plays a role as micro-finance institutions may lend up to $2,000. Acquiring larger
amounts of business debt is rare, but can be achieved through collateralized loans, or loans
guaranteed against the value of other assets (i.e. real estate). When an entrepreneur utilizes all of the
above sources of funding, he/she typically turns to equity investment for further capital infusion.
Equity investment becomes a viable route the more sophisticated the venture and the higher the
likelihood of sufficient returns based on realistic, aggressive growth plans. Lastly, an entrepreneurial
team may attract a seasoned industry expert that is convinced of the model’s viability, and who
therefore is interested in making an investment and shouldering some of the risk, but who also gets to
share in the venture’s profits. Thus, seed capital options on the equity side, include: FFF,
bootstrapping, and angel investment. Generally, seed capital markets are largely informal.
The term private equity, relates to a range of investment vehicles, of which venture capital is one
form. Venture capital, as shown above, is utilized by entrepreneurial teams that have completed a
pilot, or feasibility study and business plan. Although for the highest potential ventures, attracting
venture capital without having launched in earnest does occur, it is rare. Most entrepreneurial teams
will utilize seed capital debt and equity sources through the first several years of their existence to
demonstrate that their business model works, and that there is sufficient head room for scaling it. In
either of these cases, when a venture capitalist makes an investment for a portion of the venture’s
equity, they typically require a seat on the board of directors and have input into management
decisions.83
According to the National Venture Capital Association (U.S.) venture-capital enable entrepreneurial
outcomes, and in so doing catalyzes job creation and economic output84:
11% of private sector employment is with venture-backed firms;
Venture-backed revenue is 21% of GDP;
During 2006-2008 total private sector job growth in the U.S. was 0.2%, while venture backed
firms outpaced this rate by 8 times – at 1.6%;
During the same period, total revenues in U.S. private sector companies grew by 3.5%, yet
total revenues for venture backed companies grew by 5.3%;
From 1970 to 2008, $456 billion has been invested in over 27,000 countries.
81
See http://www.nbia.org/works
82
Ibid.
83
For further discussion Private Equity, see Chisholm (2009); for more on Entrepreneurial Finance, see Timmons
& Spinelli (2003); and for more on Venture Capital, see Metrick & Yasuda (2011) and Meyer & Mathonet (2005).
84
NVCA (2009), p. 2
34
35. DRAFT
Business Incubation in SSA
iDisc, the business incubator support network of infoDev, was launched in 2002, and has since
mobilized $20 million, supporting close to 100 institutions in 50 countries. The footprint in SSA started
in 2006 in Ghana, and now supports 44 incubators across Africa, including 3 in Ghana, 2 in Senegal, 2
in Rwanda and 2 in Mozambique. These incubators target high-growth entrepreneurial ventures.
There are communities of practice focused on generating benefits for the rural poor, the urban poor,
women and youth.85 Also, the African Incubator Network (AIN) and the South African Business and
Technology Incubation Association (SABTIA) are also regional bodies by which African incubators
exchange knowledge capital and build relationships. The incubator community, and specifically iDisc,
are focused on the following industry sectors:
Agriculture (10%);
ICTs (46%);
International (3%);
Manufacturing (20%);
Mixed Use (18%); and
Textile 3%.86
Over the past four years, iDisc activity in SSA has been focused on job creation through the launch and
scaling of new businesses, resultant growth in tax revenues, increased economic diversification and
promotion of indigenous technologies.87 A recent study of the outcomes, impacts and lessons of
global business incubation (which we presume are likely to apply within the SSA context), include: 1)
Study and replicate the most successful business incubation models; 2) Expand regional business
incubation networks; 3) Use technology to scale business incubation services in cost effective ways; 4)
Promote the community of business incubators as participants in the economy; 5) Invest in developing
innovative and entrepreneurial leaders; 6) Continue targeted investments in the ICT sector; 7) Develop
and diffuse a policy framework for supporting ICT-enabled entrepreneurs; 8) Address the lack of risk
capital; and 9) Promote a stronger entrepreneurial culture within the community.88
In relation to incubation in the developing world, there are several critical success factors89:
Volume of companies co-located is important as it leads to natural clustering & collaboration;
Entrepreneurs will learn more from each other, and other businesses, than ‘consultants’;
Combining start-ups with mature companies in same building encourages collaboration;
Diversified models (incubation + office rentals) keep programs sustainable and independent;
Not being 100% publicly funded keeps incubator focused on tenants and services provided;
Strict entry criteria (focused on innovation & implementation) can ensure high success rates;
Investors/entrepreneurs seeking to make new equity investments can be leveraged as
mentors;
Businesses seeking future clients can provide discounted professional services;
A strong manager who monitors both mentors and companies is key;
85
See http://www.idisc.net/en/Index.html
86
Ibid.
87
See http://www.idisc.net/en/Page.MEIA.Incubator.Overview.html
88
See http://www.idisc.net/en/Page.MEIA.Study.Recommendations.html
89
infoDev (2009), p. 6 – 7
35
