1. IIIS Discussion Paper
No.386/ November 2011
Developmental Entrepreneurship in Sub-Saharan Africa -
Assessing Financial and Social Returns
Louis Brennan and Dale Fickett

2. IIIS Discussion Paper No. 386
Developmental Entrepreneurship in Sub-Saharan Africa -
Assessing Financial and Social Returns
Louis Brennan and Dale Fickett
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3.
Developmental Entrepreneurship in Sub‐Saharan Africa ‐
Assessing Financial and Social Returns
Louis Brennan and Dale Fickett**
*
ABSTRACT: This paper focuses on Developmental Entrepreneurship in the context of Sub‐
Saharan Africa (SSA). A model of Developmental Entrepreneurship Outcomes along the
dimensions of financial and social returns is introduced. The model is applied at a national
level to the forty six countries of SSA. Fifteen are found to be attractive environments for
poverty alleviation from micro, small and medium enterprise activity with Mozambique,
Rwanda and Zambia having the most attractive environments. The results from the model
are found to correlate with data from the World Bank Group Entrepreneurship Survey and
the Global Entrepreneurship Monitor.
Keywords: Developmental Entrepreneurship, Sub‐Saharan Africa, Financial Returns, Social Returns,
Evaluation Methodology.
1. Introduction
In 2005, 388 million people, or 51% of the population of sub‐Saharan Africa (SSA) were living below
the international poverty line of $1.25 per day (measured in purchasing power parity). This is the
worst regional poverty rate in the world.1 Of the 1.374 billion people that live in this extreme state
of poverty globally, almost a quarter of that global poor2 live in SSA. In fact, despite having 12.4% of
the world’s population, the region produces only 0.023% of global GDP.3 Moreover, the region has
the second lowest average GDP per capita at only $1,233 (second to South Asia).4
The UN has classified countries based on their level of economic development, and SSA is the largest
collection of countries of ‘Low Human Development’; or those with the worst levels of health care,
standards of education, and income levels.5 Globally, there are approximately 1.1 billion people
living in 42 such countries, and 790.4 million of them, or 71.9%, live in SSA.6 As a region, SSA suffers
the lowest development rankings on every primary measure – the lowest overall human
* Corresponding Author. Institute for International Integration Studies and School of Business, Trinity College,
Dublin 2, Ireland. Email: brennaml@tcd.ie
** Dale S. Fickett, Soquent, 16 Honey Locust Court, Blackwood, NJ 08012, USA. Email:
dfickett@hotmail.com
1
See World Bank (2011a). See also World Bank (2011b), pp. 63‐67
2
ibid
3
UNDP (2010a), pp. 187 and 210; GDP based on 2008 data and measured in PPP
4
UNDP (2010a), p. 201; GDP based on 2008 data and measured in PPP
5
See UNDP (2010a), p. 146. SSA has an overall Human Development Index value of 0.389, the lowest of any
region.
6
Calculations based on statistics drawn from the UNDP (2010a), pp. 184‐187.

4. development index, lowest life expectancy at birth, least number of years of expected schooling for
the average child, and the worst measures of gender inequality.7 In sum, sub‐Saharan Africans, by
most measures, suffer the world’s worst conditions of poverty and the poorest standards of living.
The determinants of extreme poverty or the lack of development, are highly debated; and the
prescribed solutions even more so. Interventions have ranged in size and scope, and have involved
both ‘top‐down’ and ‘bottom‐up’ efforts. These efforts fall within an umbrella process that includes:
(1) Harnessing required inputs – human capital, financial capital, social networks, and intellectual
capital; (2) Ensuring policy effectiveness in input utilisation (primarily at national level) in setting
development priorities, in promoting and regulating markets conducive to inward foreign direct
investment (FDI), and in setting domestic and international policy; and (3) Measuring and reporting
the achievement of outcomes in the areas of poverty and hunger, health, education, economic
growth, gender equality, environmental sustainability, and governance.
Interventions occur within a complex and dynamic development environment (see figure 1). There
are a range of existing economic, demographic, geo‐political and socio‐cultural factors to consider.
These change over time, and vary across countries and regions. To some extent, this change is
driven by external ‘globalisation effects’. Placed on the backdrop of the increasing pervasiveness of
connective technologies, propagation of corporates’ expansive global operating models, and the
increasing prevalence of open market policies, this set of effects impacts the country‐specific factors
mentioned. Furthermore, this dynamic has been recently impacted by the 2008‐09 financial markets
crisis and resultant global economic recession (labelled ‘current economic disruption’). While this
dynamic context continues to shift, a range of stakeholders implement programs which are intended
to assist in the achievement of the Millennium Development Goals (MDGs). In 2000, the
international community agreed to a set of specific targets for improvements to be achieved by
2015.8 To achieve these goals Africa must surmount significant challenges: undiversified production
structure, low human capital, weak governance, state fragility, women’s empowerment deficiencies,
youth unemployment and climate change.9 Since the establishment of the MDGs, progress in SSA
has been made in certain areas, but significant challenges remain.10 Between 2002 and 2007 SSA
economic growth topped 6.5% ‐ the highest rate in 30 years11; however, recent progress has been
slowed due to weaker employment incomes (including 1 million unemployed in South Africa), and
the impact of the 2008 food and fuel price spikes.12 Economic growth does not necessarily translate
into poverty reduction outcomes, but its positive currents can be advantageous.
7
UNDP (2010a), p. 146
8
See United Nations (2011a)
9
World Bank (2011d), p. 1
10
See United Nations (2011a)
11
IMF (2009), pp. 1‐3
12
IMF (2011a), p. 1
2

5. Current Continuing
Economic Globalisation Effects Development
Disruption Increased Growth in Challenges
New Pockets of Multi‐directional
Resources Emerging Market War for Talent
Innovation Capital Flows
• Capital constraints Constraints Consumers
within donor
country
governments
• Extreme Poverty &
• Commodity price Complexity of Country‐Specific Development Factors Hunger
volatility
Degree of Growth in Improvements in Improvements in Wealth • Primary Education
• Weakening global
Commodity outward FDI to Macro‐economic Agricultural Distribution / • Gender Equality
trade
Dependency Developed Stability Productivity Inequality
• Child Mortality
Economic
• Credit Constraints Countries
and Banking • Maternal Health
Variability in Under‐ Diversification of
Regulatory Change Constraints on Poverty
Fiscal Health and • HIV/AIDS, Malaria
New Inward FDI Employment Export Base Reduction Trends
• Asset Devaluations Current Accounts and other Diseases
(e.g. Equities, Real • Environmental
Estate) Sustainability
graphic
Emigration / Health &
Demo‐
Population Profile Rural to Urban Life
• USD Currency Migration Immigration Education Expectancy • Global Partnership
& Growth Rate
Devaluation and Trends Levels for Development
Monetary
political
Implications Democracy & ODA Climate Change Food
Geo‐
Pockets of Armed Human Rights
• Unemployment Conflict Reductions Vulnerability Crises
Progress Levels
Growth
Attitudes Shaped
cultural
• Economic
Tribal and Community Religious & National
Socio‐
History of Aid by Disaster
Stagnation in Spiritual Beliefs Identity
Dependency Norms Survival
Developed
Countries
Figure 1: Complexity of Development Challenges
3

6. Discussions of efforts to alleviate poverty, and to achieve synergies in the achievement of the MDGs,
increasingly include the role of private investment and private enterprise as a part of the solution. In
fact, one of the chief risks to MDG achievement would be a slowing of economic growth and
protracted unemployment.13 Private enterprise can provide a direct route to income increases
through employment options, entrepreneurial opportunities, or micro‐enterprise activities of
necessity.
2010‐2020 is likely to be the first time since the industrial revolution that developing countries
contribute more global economic growth than developed countries. Africa will play a leading part in
this growth. 14 Africa (including North Africa) has gross domestic product of $1.6 trillion, roughly the
size of Brazil or Russia15; and according to the IMF, “Sub‐Saharan Africa has recovered well from the
global financial crisis, and the region is now second only to developing Asia in its rate of
expansion.”16 For 2011 and 2012 the IMF expects SSA growth to return to those levels achieved
prior to the financial crisis of 2008‐09, with predictions of 5.5% GDP growth for 2011 and 6% for
2012.17 There is some variation by country, with most growth is expected to be experienced in low‐
income countries and oil‐exporting countries; while the picture is “less favourable” for other middle‐
income countries (notably South Africa).18
Economic growth which assists in poverty alleviation for those with the lowest incomes has been
termed ‘pro‐poor growth’ or the development of ‘inclusive markets.’ The UNDP describes inclusive
business models as those which include the poor as producers, employees and customers; and
declares that their use can make a significant contribution towards meeting the MDGs.”19 Aside
from conducting normal operations and expecting ‘trickle down’ effects for the poor, businesses can
pursue a range of opportunities which directly improve their livelihoods by: (1) Adopting profitable
and sustainable business models which purposefully include the poor as employees and suppliers;
(2) Contributing knowledge and capabilities to create affordable products and services for the poor
which meet basic needs; (3) Replicating proven models to increase productivity and to expand
poverty alleviation impact into new markets; and (4) Advocating for pro‐poor policies which increase
incomes, provide economic choice, and empower the disadvantaged. 20
Multinational companies, large domestic companies, small and medium enterprises (SMEs), and non
profit organisations interact with policymaking institutions, research and advocacy institutions,
finance institutions, and others to form a network that enables the growth of inclusive markets.21
SMEs are uniquely positioned due to their close ties with employees, customers and business
partners; and they often “go the last mile” to cater to, and source from, low‐income communities.22
The growth of this entrepreneurial activity is increasingly viewed as a priority in fostering economic
13
OECD (2010), p. 8
14
McKinsey (2010), p. 4
15
McKinsey (2010), p. 11
16
IMF (2011b), p. 79
17
IMF (2011a), pp. 1‐4; See also World Bank (2011d), p. 2
18
IMF (2011a), pp. 1‐4
19
UNDP (2010b), p. 4
20
UNDP (2008) pp. 22‐23; UNDP (2010b), p. 4; See also Prahalad, C.K. (2004)
21
UNDP (2010b), pp. 7‐13
22
ibid, p. 7
4

7. growth, contributing to economic diversification, catalyzing innovation, providing employment and
other income opportunities, and catalyzing the achievement of development goals.23
Global 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.24 Despite the financial contraction in 2008‐09 and its
effects on entrepreneurs,25 the 2010 GEM survey found that over 250 million people in 59
economies are engaged in early‐stage entrepreneurial activity, or are running a business that was
started less than 3½ years prior. Of these people, 63 million expect to hire at least five employees
over the next five years, and 27 million expect to hire at least 25.26 The GEM also finds that in sub‐
Saharan Africa survey respondents “exhibited high perceptions about the presence of opportunities
in their area, their capabilities for entrepreneurship, and their intent to start a business.” Moreover,
sub‐Saharan African countries have the highest concentrations of Total Entrepreneurial Activity
amongst those countries with ‘factor‐driven’ economies, or those economies dominated by
subsistence agriculture and extractive industries.27 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) 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.28 Since 2004 the
WBGES has captured the creation of 2,690,818 new firms in SSA, or 14% of the 18.7 million started
globally.29 As SSA’s portion of global economic output is much smaller at 1.52%30, arguably we are
starting to see entrepreneurship as an important engine of economic activity in SSA. 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.31 These MSMEs were shown to
contribute 38% to 66% of their respective country’s employment.32 Indeed, McKinsey recently
agreed with this assessment of the importance of the entrepreneurial sector in Africa’s growth,
23
In IFC (2006) the term MSME, or ‘micro, small and medium enterprise’ is used to describe the broad
segment of entrepreneurial activity of individuals and small businesses; and recently, the World Bank defined
their study of entrepreneurship to include “the activities of an individual or a group aimed at initiating
economic enterprise in the formal sector under a legal form of business.” See World Bank (2010a), p. 7. Here
we refer to ‘entrepreneurial activity’ in its broadest sense, to capture the activity of all MSMEs regardless of
their growth trajectory, and to include those operating on an informal basis. See also World Bank (2010b); IFC
(2010); OECD (2010b); Klapper et. al. (2008); Jenkins et. al. (2007); UNIDO (2004)
24
Acs et. al (2007), p. 11
25
Global Entrepreneurship Monitor (2010), pp. 7‐11; World Bank (2010a), pp. 2‐6
26
Global Entrepreneurship Monitor (2010), p. 7‐11
27
ibid. GEM classifications of economies are based on the World Economic Forum’s Global Competitiveness
Report. See Schwab (2010).
28
See World Bank (2010c), and other WBGES resources at: http://go.worldbank.org/C8Q8EGTTH0
29
ibid.
30
World Bank (2010d), p. 34
31
See IFC (2011)
32
ibid.
5

8. stating, “Entrepreneurship is seen as a significant component to private sector growth (in Africa).”33
The importance of entrepreneurship in Africa’s economic growth is apparent, as is the importance of
inclusive growth for the alleviation of poverty.
The rest of the paper is structured as follows: In the next section we review the developmental
entrepreneurship literature, covering the linkages between entrepreneurial activity and poverty
alleviation. We then develop a model for the assessment of developmental entrepreneurship
outcomes in section three, and apply that model at a national model in section four of the paper.
The following section analyses the results from the application of the model while the sixth and final
section of the paper offers some conclusions and presents some considerations for future work.
2. Literature Review
2.1 Defining Developmental Entrepreneurship
‘Developmental entrepreneurship’ sits at the intersection of development economics theory and
entrepreneurship theory, of the economics and management disciplines, respectively. From the
economics literature, Naude summarises that both fields have developed rapidly over the past fifty
years, but did so in relative isolation from one another; and that it is now widely recognised that it is
“of great practical importance to understand if and when entrepreneurship is a binding constraint on
economic development...in developing countries.”34 Areas of particular interest in relation to
entrepreneurship within the development economics community include: structural change and
economic growth, income and wealth inequalities, welfare, poverty traps, and market failures.35
From the management literature, Bruton et al summarise that although there have been
tremendous strides in the entrepreneurship literature; it is largely based on evidence from
developed country markets.36 With only 43 articles (of 7,482 published during 1990 – 2006 in the
defined ‘leading management journals’) addressing entrepreneurship in emerging economies, it
remains an area of great importance and “woefully under‐examined.”37 In sum, development
entrepreneurship is the study of utilising the establishment and growth of small businesses as a lever
to alleviate poverty in countries with low levels of economic development, and requires research
attention.
Broadly, the existing research from both disciplines can be viewed within two categories – ‘top‐
down’ policy recommendations, such as those to foster environments more conducive to
entrepreneurial activity; or ‘bottom‐up’ examinations seeking to describe various insights relating to
the individual entrepreneur, which tend to emanate from the management discipline. In the former,
there have been an array of findings, in relation to: developing country strategies to promote
enterprise development38, financial regulatory change to increase access to financial institution
accounts (for the benefit of small African firms)39, the growth effects of government strategies for
pursuing trade and investment liberalisation in Least Developed Countries (LDCs) and their
33
McKinsey (2010), p. 69
34
Naude, W. (2010), p. 1
35
ibid.
36
Bruton, G., Ahlstrom, D. and Obloj, K. (2008), p. 1
37
ibid., p. 3
38
Adeoti, J. (2000), p. 57
39
Honohan, P. and Beck, T. (2007), pp. 141‐142
6

9. concomitant effects on small firms40, social entrepreneur development programmes to “attract
back” developing country diaspora with entrepreneurial competencies41, and policy mobilisation to
capacitate greater access to domestic, regional and global agro‐markets as a poverty alleviation
mechanism.42 These findings have generally been promulgated by the development economists, as
they fall near the core scope of the discipline – providing policy recommendations regarding
governance, utilisation of aid, stimulation of trade and investment, and markets regulation.
Conversely, the ‘bottom‐up’ research provides insights which are derived from examining the start‐
up firm or the entrepreneur in a developing country context, including descriptive characteristics,
success determinants, work outputs, and social contributions. Examples of such work, include:
Kiggundu’s description of the African entrepreneur, typical start‐up models, and the external
contexts of which they are a part43; Mbaku’s observations regarding corruption, and specifically
entrepreneurs’ propensity for trading bribes for political favours44; Jackson’s construction of a firm‐
level, rather than government‐ or donor‐level view of the market context (based on research of
textile and garment entrepreneurs in Zimbabwe)45; and Valliere’s & Peterson’s extension of the
economic growth model to reflect differences between developed and emerging markets as regards
new venture impacts on Gross Domestic Product (GDP) growth.46
In short, development entrepreneurship literature has shifted over the last two decades from
specific, supply‐driven interventions for small enterprises, to broader market development methods;
as microfinance and business development services (BDS) are increasingly demand‐led and treated
holistically through a value chain approach.47 Jones and Miehlbradt provide a comprehensive
timeline of the enterprise development literature (see Table 1).48
Stage Description
Beyond Credit Support for small enterprise is understood to go beyond provision
(early to mid‐1990s) of finance and includes ‘market development facilitation’, requiring
an understanding of the systems in which the enterprise exists
Subsector analysis approach is developed and applied
Commercial Service Business Development Services (BDS) paradigm evolved to formalise
Delivery a range of non‐financial inputs to support indigenous entrepreneurs
(1995‐2002) – training, transportation, technology, market access and
information
Renewed focus on monitoring, evaluation and impact assessment
Systems Approaches Under a range of names (e.g. pro‐poor enterprise development,
(2002 – present) value chain development, market development, and making
markets work for the poor49) focus began to shift to how community
and government organisations can play a role in promoting
40
Siddiqi, M. (2008), pp. 42‐43
41
Prieto, L., Osiri, J. and Gilmore, J. (2009), p. 53; Murphy, R. (1999), p. 661
42
Regnier, P. (2009), p. 121
43
Kiggundu, M. (2002), p. 239
44
Mbaku, J. (1999), p. 309
45
Jackson, P. (2004), p.769
46
Valliere, D. and Peterson, R. (2009), p. 459
47
Steel, W. (2009), pp. 286‐290
48
Jones, L. and Miehlbradt, A. (2009), pp.304‐314
49
“Making markets work for the poor” is often abbreviated “M4P.”
7

10. entrepreneurial activity
Subsector analysis and BDS are blended to achieve new insights on
industry competitiveness, value chain development, programme
design and market demand assessment
Developing Inclusive Practitioners are starting to focus on the poor as producers,
Systems consumers and workers
(2004‐present) Some agencies are focused on the enabling environment, or
external market context; and have greater integration of multiple
functions and multiple players – policy level, value chain / meso‐
level, and micro‐enterprise level interventions
Current analytical frameworks focus on various aspects of poor
people’s lives, such as culture and economic incentives
Table 1: Four Stages of Enterprise Development Theory and Practice
2.2 The Locus of Developmental Entrepreneurship
2.2.1 Stakeholders
Developmental entrepreneurship stakeholders are a subset of the broader global development
community. This community is comprised of: (1) inter‐governmental organisations; (2) national and
local public sector policy makers in developed and developing countries; (3) civil society; (4) the
private sector; and (5) beneficiaries.
The subset of these stakeholders that participate in the utilisation of developmental
entrepreneurship for poverty alleviation is shown in Figure 2. Each of the five stakeholder groups is
represented within the map. Within inter‐governmental organisations there are various efforts to
develop economies by spurring the growth of inclusive markets through various market
development programmes.50 In the public sector, government agencies sit on opposite sides of the
Official Development Aid (ODA) flow – those that provide funding, and those that receive it. In civil
society there are a range of organisations that prioritise sustainable livelihoods approaches in their
global poverty alleviation efforts, some of whom could also be classed as social entrepreneurs,
based on the maturity level of the organisation and their use of a not‐for‐profit model.51 Other
social entrepreneurs have grown their organisations to significant scale (as distinct from indigenous
microenterprise beneficiaries) and are making a contribution to poverty alleviation – such as
Grameen Bank and International Development Enterprises.52 These stakeholder groups have
traditionally marshalled private donations and government funding to address developing country
poverty through not‐for‐profit models, however new for‐profit models are also emerging.
New for‐profit social entrepreneurs are harnessing competitive capital to scale their operations. As
these social entrepreneurs compete in private sector markets, so too are more traditional multi‐
national corporates. For example, microfinance institutions span both for profit and not‐for‐profit
models; include start‐ups and mature corporates; have core businesses in banking, retailing, and
mobile telecommunications; have local versus global footprints; centre on a double or triple bottom
line versus sole commercial motive; and offer basic versus complex product ranges.53
50
See Kinda, T. and Loening, J. (2008); UNDP (2008)
51
See Coates, B. and Saloner, S. (2009); Ewalt, D. (2009); and O’Brien, J. (2008)
52
See Yanus, M. (2007) and Polak, P. (2008)
53
See Annibale, R. (2009), p. 263
8

11. Within the private sector, other for‐profit models have been introduced to fight global poverty. As
mentioned, microfinance institutions, and other social entrepreneurs are using for‐profit SME
models that provide finance, training, or other inputs required by the micro‐entrepreneur. SKS
Microfinance stands as a good example of a microfinance provider, modelled as ‘for‐profit’ from
inception.54 These social entrepreneurs are innovating ways to contribute to poverty alleviation, and
there is increasingly a body of research on social entrepreneurship which is relevant to its utilisation
as a tool to achieve global development outcomes.55 In the private sector, more mature multi‐
national corporates have launched various Corporate Social Responsibility programmes which
contribute to local entrepreneurship to varying degrees. These programmes range from making
traditional donations to the establishment of foundations to leveraging core capabilities that achieve
social outcomes as a pillar of corporate strategy.56 These corporate philanthropic activities occur on
an industry backdrop that includes competition, amongst Western and (increasingly) emerging
market multinational organisations, to tap local pools of natural resources, talent and consumers.57
Inter‐governmental Private Sector
Organisations Emerging Market
Programme Owners
Microenterprise and Market
Development Programme Corporate Social
Directors Responsibility
Leaders
Beneficiaries
Creditors Microfinance
Shareholders Institutions &
BDS Providers Entrepreneurs Customers Other Social
Employees Entrepreneurs
Suppliers
Developed
Country
ODA Agencies Sustainable
Livelihoods
Developing Country Advocates
Finance Ministries
National & Local
Civil Society
Public Sector
Figure 2: Map of Developmental Entrepreneurship Market Participants
All of the participants may play a role in the process of developing indigenous entrepreneurs, and as
such may be included in the beneficiaries category (hence the overlap depicted in the Venn
diagram). Of course, core to the beneficiaries category are the poor themselves, who play different
roles along the value chain. The ‘beneficiaries’ category can be split into three sub‐categories: First,
54
See Akula, V. (2008)
55
See Harris, J., Sapienza, H. and Bowie, N. (2009); Prieto, L., Osiri, J. and Gilmore, J. (2009); Zahra, S.,
Gedajlovic, E., Neubaum, D. and Shulman, J. (2009); Hockerts, K. and Wustenhagen, R. (2009); Dean, T. and
McMullen, J. (2007); Maier, J. and Schoen, O. (2007); and Dorado, S. (2006)
56
Porter, M. and Kramer, M. (2008), pp. 451‐477
57
Accenture (2009), p. 7
9

12. those that provide required inputs include the providers of debt and equity financing, those
providing capacity building training and other BDS services, employees that provide required labour,
and goods suppliers. Moving left to right, the entrepreneurs transform these inputs, through value‐
creating activity, into outputs for indigenous populations or for export. In so doing, these
entrepreneurs improve their own livelihood and those of their family through increased income and
thus expanded economic choices. Lastly, on the right, the end‐users or customers, benefit through
the availability of, and the direct purchases of, a good or service which improves standards‐of‐living.
Clearly, there is a set of complex relationships amongst global development community, especially
as various organisations play differing roles in various engagements. This complexity also applies for
the subset of stakeholders that participate in developmental entrepreneurship initiatives. Whether
viewed through the lens of the economist, management theorist, entrepreneur, corporate leader,
policy‐maker, or global development practitioner – developmental entrepreneurship is a significant
tool for generating organic and pro‐poor economic growth, building sustainable livelihoods, and
alleviating conditions of poverty in these embryonic markets where the benefits are most needed.
2.3 Developmental Entrepreneurship and SSA
One of the key factors of developing countries’ economic growth, and creating an environment
conducive to the developmental entrepreneurship, is the ability to attract FDI and deploy it for
productive use within the private sector.58 Countries need a sound business environment in the
form of good government regulations to benefit from FDI; however excessive regulation can
discourage foreign investment.59 Necessary conditions to attract FDI also include infrastructure
relevant to the proposed project, stability of property rights, and democracy insofar as it provides a
deterrent to expropriation and corruption.60 There is also research indicating a correlation between
good governance and economic performance.61 Furthermore, the OECD recommends that in order
to attract increased investment, developing countries should foster a diversified financial sector,
lower the costs of investment, reduce risks, improve competition, and develop capacity.62 In order
that developing countries harness financial capital and other inputs as productive means towards
economic growth ends, policies must focus on creating climates most conducive to inward
investment. “What ultimately count are the productivity gains that result from product and process
innovations brought about through investments, as well as the extent to which jobs and capital flow
from declining industries to expanding ...economic activities.”63
Fox and Sekkel Gaal summarise that SSA growth was stimulated by policies in the 1980s and 1990s
that provided macro‐economic stability and expansion of the domestic sector.64 Indeed, there is a
range of factors that impacts the suitability of business activity: macro‐economic conditions,
corruption, infrastructure, workforce skills, security, strength of the financial system and
regulation.65 On the basis of individual enterprise regulation (as opposed to market regulation), the
World Bank’s Doing Business 2011 reveals that SSA has the least friendly business environment. This
is important because of its direct effect – each entrepreneur has to comply with local rules regarding
58
OECD (2006a), pp. 11‐14
59
Busse, M. and Groizard, J. (2006), p. 1. See also World Bank (2010b)
60
Khan, M. (2005), pp.77‐82
61
See Hall, R. and Jones, C. (1999)
62
OECD (2006a), pp. 15‐17
63
ibid
64
Fox, L. and Sekkel Gaal, M. (2008), pp. 1‐2
65
World Bank (2010b), p. 1‐4
10

13. starting a business, paying taxes, trading across borders, registering property and others. More
fundamentally, when the rules are based on transparency and efficiency, opportunities are less likely
to be based on patronage and nepotism.66 Despite the regulatory challenges in SSA, there are signs
of improvement. SSA as a region has one of the lowest rates of reform, with 59% of countries
instituting a regulatory change. However, this is up substantively from 22% in 2005; and three
countries made the 2011 short list of those economies improving the most – Rwanda, Cape Verde,
and Zambia67 As the poorest region in the world, and despite relatively poor physical infrastructure,
Sub Saharan Africa has made large progress in promoting economic growth, in large part, through
macro‐economic stability, political reforms, and, increasingly, regulatory changes – all aimed at
improving investment attractiveness. Consequently, starting from a poor position and still amongst
the worst business environments in the world, the environment for developmental
entrepreneurship opportunities is improving.
Economic growth does not equal economic development – alleviation of poverty, improvements in
health services, or gains in educational standards. Income is one of the primary metrics used in
economic analysis. Economists utilise several methods for measuring income distributions – size
distribution of income, as measured by the Gini coefficient; functional distributions, or factor share
distributions (i.e. returns to land, labour, capital); and measures of absolute poverty, as measured by
the Human Poverty Index.68 These measures provide insight into the nature of economic growth,
and specifically who is benefiting from that growth. Economic growth may alleviate poverty and
address income inequalities, but not necessarily. For example, historic growth constrained within
extractive industry segments in developing countries led to increased gross national incomes, and
with a constant rate of population growth, per capita incomes naturally rose as a mathematical
consequence; but this income was highly concentrated and relatively few people escaped poverty as
a result, hence growth without development.69
As described in the first section of the paper, the economic growth which does assist in poverty
alleviation for broad portions of the population has been termed ‘pro‐poor growth’ or the
development of ‘inclusive markets.’ There is a significant body of research supporting the assertion
that entrepreneurial activity is critical to developing economies, and that it contributes to poverty
alleviation. The OECD promotes the “central role” of the private sector in poverty alleviation, and
provides an analytical framework and set of policy recommendations to facilitate pro‐poor growth,
including the provision of incentives for entrepreneurship and investment by fostering: (1) low
market entry and exit barriers; (2) predictable rules of exchange; (3) secure and transferrable
property rights; (4) enforceability of contracts; and (5) low levels of corruption.70 Azmat and
Samaratunge found that a range of factors brought about the prevalence of small‐scale individual
entrepreneurs (i.e. microenterprises), which form a major part of the informal workforce and
contribute significantly to economic growth in developing countries.71 Debrah concludes that SSA
governments should promote the informal sector as a significant source of employment.72
66
ibid
67
ibid
68
Todaro, M. and Smith, S. (2006), pp. 195‐207. The UNDP metrics now include the Human Development
Index (HDI) and newer innovations such as the Inequality Adjusted HDI (see section I).
69
ibid, pp. 15‐20
70
OECD (2006a), pp. 14‐15, 20
71
Azmat, F. and Samaratunge, R. (2009), p. 437
72
Debrah, Y. (2007), p. 1063
11

14. Furthermore, Lado & Vozikis posit, “That entrepreneurship is vitally important to economic
development of a nation is indisputable”73; while Morris concludes that sustainable economic
development does not occur without entrepreneurship, and higher levels of entrepreneurship are
directly correlated with increases in GDP, societal wealth, and quality of life.74
Fox and Sekkel Gaal observe that most poor households derive income through the sale of their
labour to themselves or to others, and that earning more money faster is the key factor in increasing
the impact of economic growth on poverty reduction. Furthermore, to overcome existing challenges
to job creation, African economies need to be more globally competitive, by focusing policy
initiatives on creating climates attractive for investment. Finally, they conclude that the high growth
in the informal sector (or micro‐enterprises) is a supply‐side response to weak demand for labour
amongst medium and large enterprises; and prospects for increasing productivity in small hold
agribusiness provides a viable route for working out of poverty.75 According to the UNDP, “The poor
harbour a potential for consumption, production, innovation, and entrepreneurial activity that is
largely untapped.”76 They also site many examples of businesses that are creating “value for all” by
buying from, and selling to, the poor.77 Benefits are significant, as businesses have enjoyed profits
(microfinance institutions earning 23% return on equity, as an industry average), growth potential in
new markets, innovation capability enhancements, and an expanded labour pool. Likewise they
reference a range of benefits for the poor – income increases, improved standards of living, higher
productivity and increased empowerment.78 In short, development entrepreneurship in sub‐
Saharan Africa is a key lever for poverty alleviation, as it helps develop inclusive markets by utilising
land and labour in income‐generating activity whose production and consumption improves
standards‐of‐living.
2.4 Challenges at the Enterprise Level
As described above, there are significant challenges associated with conducting business of any size
in SSA: lack of reliable infrastructure, capital shortfalls, poor regulation, armed conflict, and endemic
corruption. Importantly, these factors significantly vary by country. The UNDP has identified five
critical constraints for growing inclusive markets: lack of market information, poor regulatory
environment, weak infrastructure, insufficient access to capital, and difficulty garnering appropriate
skills and knowledge.79 Similarly, Trulsson categorises these constraints as: access to finance,
financial management competencies, market orientation, human resources, physical infrastructure,
policies & regulations, and information & networks.80 Duncombe & Heeks find that poor rural
entrepreneurs also rely heavily on informal, social and local information systems, especially shared
telephony services. Nichter & Goldmark find small firm growth factors in four areas – the
entrepreneur, the firm, relationships & networks, and context & environment.81 Lastly, Okpara
concludes that an entrepreneur’s pro‐activity in engaging in export markets, and related financial
commitments, cause higher firm profitability and growth.82 These entrepreneurs face significant
73
Lado, A. & Vozakis, G. (1997), p. 55
74
See Morris, M. (2001)
75
Fox, L. and Sekkel Gaal, M. (2008), pp. 1‐2
76
UNDP (2008), pp. 1‐12
77
ibid
78
ibid
79
ibid
80
Turlsson, P. (2002), p. 331
81
Nichter, S. and Goldmark, L. (2009), p. 1453
82
Okpara, J. (2009), pp. 1281‐1282
12

15. contextual challenges, and below we discuss research which illuminates challenges related to
financial access, the policy context, and social capital.
Access to finance is a key obstacle for the development entrepreneur. Overall trends indicate a
significantly constrained flow of capital to emerging markets – decreasing from $890B in 2007 to
$390B in 2008 and $140B projected for 2009.83 Despite recent contractions, capital inflows into
Africa (including North Africa) have increased from $9 billion in 2000 to $62 billion in 2008 –
comparable to China on a GDP basis. Development entrepreneurs find it difficult to access credit and
equity financing to expand their ventures. Mushinski & Pickering observe that microenterprises
have virtually no access to formal credit markets84, although the microfinance industry is beginning
to address this market gap (see next section). Hossain and Knight argue in favour of microcredit due
to its role in expanding micro‐enterprises and fighting rural poverty.85 However, there is a debate
regarding microfinance’s effectiveness. Smith & Thurman in A Billion Bootstraps argue for the
expansion of micro‐credit; while Amsden & Ha Joon Chang argue against such expansion in some
over‐supplied markets, as new entrants may displace existing enterprises and have net worsening
effects. 86 Datar et al launch another attack on microfinance providers, concluding that in their push
to alleviate poverty, they should focus on assisting their clients build sustainable enterprises, rather
than on providing greater volumes, and ever larger loan amounts.87 Financial capital is a primary
input for the microenterprise, and microfinance providers are well positioned to providing this
crucial step out of poverty.
Microenterprises are also dependent on the regulatory environment (as described above) ‐ the
extent to which this factor creates a challenge or an advantage for a given entrepreneur is primarily
country‐driven. Facets of the regulatory environment include: efficiency in acquiring business
permits or in closing a business, property rights and contract enforcement protections, efficiency in
taxation administration, and the regulations that are industry specific. Other domestic regulatory
supports are often more indirect, but of consequence – financial sector stability, domestic
infrastructure88 and human capacity investments, fiscal sustainability, public sector governance, and
stances on human rights. Indirect international policy is often more remote to the entrepreneur, but
still relevant based on the entrepreneur’s competitive market (e.g. extent of importing/exporting).
These factors include: ODA expenditures, trade agreements, security, and monetary stability. Some
examples of related research, include: Beck et al on financial market policy to broaden access89; the
World Bank’s Doing Business series covering cross‐border comparisons of reforms related to
improving efficiency in operating businesses90; Aubert on promoting developing world innovation91;
Ayele on investment incentives and resultant market distortions92; the World Bank working paper on
83
Cline, W. (2009), p. 2
84
Mushinski, D. and Pickering, K. (2007), p. 567
85
Hossain, F. and Knight, T. (2008), p. 155
86
See Smith, P. and Thurman, E. (2007); Amsden, A. (2007); Ha‐Joon Chang (2007)
87
Datar, S., Epstien, M. and Yuthas, K. (2008), pp.38‐45
88
See World Bank (2010e), p. 1. The World Bank found that African infrastructure increasingly lags behind
other developing countries, has been too costly to construct and maintain, and power is by far the most
significant infrastructure challenge – characterized by a $31 billion a year funding gap.
89
Beck, T., Demirgüç‐Kunt, A. and Honohan, P. (2009), p. 119
90
See World Bank (2009b) and World Bank (2010b)
91
See Aubert, J. (2005)
92
See Ayele (2006)
13

16. regulatory conditions required to attract FDI93; Phillips et al on policy recommendations to foster
entrepreneurial activity94; and Bennett’s argument for government support of informal firms.95
Social capital, or relationship networks, is also a critical input for these entrepreneurs. One of the
most significant challenges for the SSA entrepreneur, and especially for women, is entry
requirements for the formal economy, such as education and business networks.96 For many
people, these barriers to more formal employment perpetuate entrepreneurship of necessity –
typically at a subsistence level. Wheeler observes that developing world entrepreneurs who build
sustainable, successful enterprises rely upon informal networks that include other private sector
players, non‐governmental organisations (NGOs), and other community groups, as developed with
the Sustainable Local Enterprise Network Model.97 Networks can also facilitate the recruitment of
the start‐up team, and Ibeh posits that these firms can overcome barriers to entry to international
markets through this recruitment.98 Likewise, Zhu et al found that developing country SMEs can
increase their internationalisation capabilities by leveraging embedded networks with local
governments and business groups.99 Conversely, Bernard et al demonstrate the limitation of certain
network nodes, as market‐oriented and community‐oriented organisations in rural settings are
constrained by geographical remoteness, social conservatism, lack of access to resources, and
limited management capacity.100
These challenges also present entrepreneurs with new business opportunities. Below we describe
areas of market opportunity for development entrepreneurs, and typical strategies utilised to
address them. Many factors bring about the rise of new business opportunities – a change in
demographics or regulation, the introduction of a new technology, the weakening of a once
dominant market leader, or a given enterprise’s recruitment of a new partner, to name a few. For a
given enterprise there are a number of useful frameworks and techniques for identifying and
assessing new opportunities for both established market players and new ventures, albeit created
primarily for developed market contexts.101 These frameworks necessitate an entrepreneur’s
understanding of the underlying forces, as entrepreneurial opportunities typically grow out of these
changes. There are the primary macro‐factors, or the major trends, that characterize the landscape
in which SSA entrepreneurs operate; and secondly there are several industry‐level areas of emerging
opportunity. Stemming from several significant macro‐trends and across several industry sectors,
developmental entrepreneurship opportunities are arising which help alleviate poverty by providing
the poor increased incomes or other improvements in standards‐of‐living.
2.5 Social Return Dimension
Developmental entrepreneurship opportunities provide social benefit. It is believed that the extent
of these outcomes for a given venture is based on a number of contributing factors. First, there are
93
See Busse, M. and Groizard, J. (2006)
94
See Phillips, C. and Bhatia‐Panthaki, S. (2007)
95
See Bennett, J. (2009)
96
Spring, A. (2009)
97
Wheeler et al (2005), pp. 36‐37
98
See Ibeh, K. (2004)
99
Zhu, H., Hitt, M. and Tihanyi, L. (2007), pp. 1‐2
100
Bernard et al (2008), pp. 2188‐2190
101
The management literature is rich in work covering innovation, entrepreneurship and new business
opportunities. We would particularly draw the reader’s attention to McGrath and MacMilllan (2008); Kim and
Mauborgne (2005); Timmons and Spinelli (2004); Christensen, Roth and Anthony (2004); Christensen and
Raynor (2003); and Bhide, Amar (2003).
14

17. a range of primary benefits that will result to varying degrees – income increases for the
entrepreneurs that own a new business, standard‐of‐living improvements for customers that
purchase goods or services, and increased employment or livelihood opportunities that empower
greater economic choice. Second, there are several secondary benefits, which are relevant based on
the nature of the opportunity – purchases of locally procured goods and services from value chain
partners, improvements in life expectancy and child or maternal mortality rates, increased
educational enrolment, improved gender equality, improvements to food supplies, and new benefits
related to environmental sustainability. Third, the tertiary benefits include skills and knowledge
spill‐over in target communities (or the building of human capacity); the growth in social capital, or
local networks that attract future investment, trade, and mentorship; benefits associated with
future uses of new intellectual property resulting from new technologies/innovations; and cultural
benefits of producing models that can influence policy changes and attract people to
entrepreneurial undertakings.
A number of examples in the literature demonstrate the validity of the primary benefits. Tamvada
documents increases in income for micro‐entrepreneurs, and the route out of poverty that
entrepreneurship provides.102 Similarly, Morris draws broader conclusions related to the importance
of entrepreneurship to an economy and shows correlations in GDP increases, improvements to
societal wealth, and quality of life enhancements. 103 Research by the UNDP provides evidence
regarding standards of living improvements for those availing of the offerings micro‐entrepreneurs
provide.104 Regarding labour utilisation associated with a given developmental entrepreneurship
opportunity, Koo provides evidence regarding the upward social mobility entrepreneurship and
related employment opportunities provide, Ahmed and Peerlings find that labour productivity,
incomes and welfare are all positively correlated to improved working conditions in related SMEs,
and Kellogg develops a scorecard to measure employee poverty rate improvements in the small
business customers of a non‐profit microfinance provider.105
Regarding the secondary benefits Milder provides evidence of the benefits related to value chain
partnering.106 Broader economic development, encompassing effects related to improvements in
health, education and hunger are also documented, such as those reported by Songco on household
welfare related to rural infrastructure projects, Reardon on the impacts of the agribusiness on rural
poverty alleviation for small hold farmers, and Mair & Marti on the poverty reduction impacts
related to those entrepreneurs that work to fill “institutional voids”.107 de Mel, Benzing & Chu, and
Prasad all separately address the role of gender in micro‐entrepreneurship and its impacts.108 Lastly,
Tremblay & Neef, as well as Dean & McMullen, examined the role of micro‐entrepreneurship, and
related opportunities for environmental sustainability improvements.109
The tertiary benefits related to micro‐entrepreneurship are also covered in the literature.
Papagiandis et al discuss the role of innovation and technology, and social networks, as they relate
102
Tamvada, J. (2010), p. 65
103
Morris, M. (2001), p. v
104
See UNDP (2008); and Milder, B. (2008), pp. 301, 316
105
See Koo H. (1976), Ahmed, N. and Peerlings, J. (2008); and Kellog, C. (2009)
106
Milder, B. (2008), pp. 301, 316
107
See Songco, J. (2002); Reardon, T. et al (2009); and Mair, J. & Marti, I. (2008)
108
See de Mel, S., McKenzie, D. and Woodruff, C. (2008); Benzing, C. and Chu, H. (2009); and Prasad, R. (2009)
109
See Tremblay, A. and Neef, A. (2009); Dean, T. and McMullen, J. (2007)
15

18. to spurring entrepreneurial activity.110 Endeavor, a U.S. based not‐for‐profit in the developmental
entrepreneurship space, documents outcomes related to their engagements, including outputs
related to knowledge capital transfer, cultural capital benefits, and social networks development.111
Regarding policy impacts, in 2007 the World Bank documented outcomes related to pro‐poor
aquaculture in rural Asia, including policy influence, adaptive technologies and knowledge
dissemination.112
2.6 Financial Return Dimension
In order to attract sufficient competitive capital through debt and equity sources, a venture must
demonstrate its capacity to repay the debt, or the extent of returns on equity invested, including
appropriate risk premiums. For start‐up businesses in these markets, access to microfinance is vital,
and lending criteria are typically based upon the size of the loan amount, collateral requirements,
interest rates and other service fees, compulsory savings or group contribution requirements, and
other terms and conditions.113 For the equity investor, the most holistic yardstick of firm
performance is financial returns as measured by total return to shareholders (TRS) – a measurement
inclusive of spread (return on invested capital less the weighted average cost of capital), and firm
growth . 114 This measure of financial returns is a useful tool for understanding the projected ‘end
result.’ However, a range of underlying factors contribute to the new venture’s ability to perform.
The due diligence process undertaken by an angel investor, venture capitalist or creditor in
considering a potential investment would rely heavily upon the business plan, including a range of
analyses and projections related to market size, ability to differentiate, risk mitigation, and others.
These analyses, although separate to, are also closely related to the financial performance
projections. In essence, these factors for screening opportunities are the generally accepted
indicators of the financial performance, as measured by TRS. The underlying factors related to a
venture’s ability to generate these financial returns, and hence their attractiveness, have been
considered by Timmons and Spinelli and by Cochrane.115
There are several studies related to the financial feasibility of developmental entrepreneurship.
Ferh e al utilise corporate finance techniques to estimate the difference between market rates of
returns and actual rates of return in determining the outcomes of microfinance initiatives.116 Finn
provides a case study on Village Enterprise Funds, a provider with over 9,000 micro‐grants in
developing countries, and shows the prevalence of micro‐entrepreneurs to repay loans and to start
subsequent businesses.117 De Mel et al calculated the real (i.e. net of inflation) return to capital at
5.7% per month for micro‐enterprises in developing countries.118 In 2009, Raiz published a case
study on a for‐profit incubator based in South Africa, which is profitably investing in local start‐
ups.119 Similarly, Copeland provided a case study on a new venture providing lighting solutions in
110
Papagianndis, S., Li, F., Etzkowitz, H. and Clouser, M. (2009), p. 215
111
Endeavor (2008), pp. 26‐31
112
See World Bank (2007)
113
Think Microfinance (2010) , p. 2
114
Taken, in part, from Higgins, R. (2007), pp. 53‐56, 294‐296
115
Timmons & Spinelli (2004), pp.91‐103; Cochrane (2004), p.1
116
Ferh, D. and Hishigsurren, G. (2005), p. 133
117
See Finn, B. (2005)
118
de Mel, S., McKenzie, D. and Woodruff, C. (2007), pp. 1‐2
119
Raiz, A. (2009), pp.61‐62
16

19. India and Africa, which recently received $6M in venture funding.120 Lastly, Masakure et al utilised
the resource‐based theory of the firm to assess financial performance of Ghanaian SMEs.121
A number of studies have been conducted which address specific industry sectors and geographic
markets that are attractive due to their social benefits and investment returns. The World Bank
produced two relevant reports on opportunities in SSA – one on the opportunities associated with
aquaculture, and another on agribusiness.122 In 2008, Milder described the opportunity presented
by providing venture funding in the finance gap between microcredit and corporate finance.123
Likewise, Eid provides insights regarding the opportunities for private equity in developing
countries.124 Masakure et al explore the financial performance of non‐farm enterprises in Ghana125;
and Ravallion stresses the importance of productivity in small hold farming, and their likelihoods of
success in increasing food supplies and utilising labour.126 Kirubi et al provided an analysis of the
opportunity presented by increasing village‐level community electricity improvements.127 In short,
there is currently a body of research that supports the assertion that developmental
entrepreneurship opportunities are commercially attractive. In fact, Tambunan argues that “SMEs in
LDCs can survive, and even grow in the long run, as they create a niche market for themselves, they
act as a ‘last resort’ for the poor, and they will continue to grow alongside larger enterprises for
whom they often supply required inputs.”128
From the preceding, the following have salience:
1. Sub‐Saharan Africa is the world’s worst region for extreme poverty;
2. The region is also home to significant economic growth and development improvements;
3. Inclusive markets approaches offer a proven method for harnessing private enterprise for
poverty alleviation outcomes;
4. Developmental entrepreneurship is one such approach – the establishment and growth of
micro‐, small and medium enterprises which engage the poor;
5. These entrepreneurs face significant challenges in operating within these markets, and have
adopted innovative strategies in the pursuit of local business opportunities;
6. Frameworks and techniques for identifying and assessing new opportunities for both
established market players and new ventures have been primarily created for developed
market contexts; and
7. There are social and financial returns accruing from development entrepreneurship.
3. A Model of Development Entrepreneurship Outcomes
We now focus on the development of frameworks and techniques for identifying and assessing
outcomes for developmental entrepreneurship. In particular we consider how best to support
120
See Copeland, M. (2009)
121
See Masakure et al (2009)
122
See World Bank (2007); Larsen, K., Kim, R. and Theus, F. (2009)
123
See Milder, B. (2008)
124
See Eid, F. (2006)
125
See Masakure et al (2009)
126
Ravallion, M. (2008), p. 303
127
See Kirubi, C. et al (2008)
128
Tambunan, T. (2008), p. 147
17

20. development entrepreneurs – so that through their success, they may work to improve the
livelihoods of people within their families, communities, and industries. Support for the
entrepreneurs of SSA has taken the form of programmes from the full range of stakeholders.
Naturally, it becomes necessary to allocate finite resources, and allocation decisions need to be
based upon informed analysis.
Two principles underpin the following model of developmental entrepreneurial outcomes: (1) Valid
prediction of a given entrepreneur’s propensity for financial return and social impact is possible (see
figure 3); and (2) Precious resources should be allocated to those opportunities which maximize the
achievement of both goals.129
Clearly, difficulty arises in comparing enterprises and balancing trade‐offs. Three types of trade‐offs
are apparent. First, there are ‘social‐social’ trade‐offs and value judgments to be made when
comparing impact along the social dimension. For example, is it preferable to invest in a start‐up
with the potential to educate thousands of students, or in one which can employ hundreds?
Second, there are ‘social‐financial’ trade‐offs. Is it wiser to invest within an enterprise with a proven
potential to generate 18% internal rate of return (IRR) and a demonstrable ability to raise the
income of 300 people; or is it wiser to invest in the enterprise with a proven ability to generate
22.5% IRR and a demonstrable ability to raise the income of 250 people? Does the longer‐term
potential of the second enterprise – given their presumed future ability to raise capital and expand
impact through the replication of their model – warrant the investment over the first? Third, the
‘financial‐financial’ trade‐offs have been within the remit of loan underwriters and early‐stage
investors conducting due diligence. Although judgment always plays a role, there are certainly
better codified models for assessing the risk, returns, and a range of other factors which are likely to
affect enterprise performance (see below).
3.1 Financial and Social Returns – The Trade­offs
Social Return Dimension
Not‐for‐Profit and Most Attractive
Public Sector Space Opportunities
Least Attractive
Private Sector Space
Opportunities
Financial Return Dimension
Figure 3: Dimensions of Developmental Entrepreneurship Outcomes
129
In our model we include environmental benefits within the ‘social’ dimension. As a public good, we
consider benefits to the environment a social benefit, similar to income improvement for the poor or
improved health or education standards.
18

21.
These trade‐offs can occur for the investor considering two or more early‐stage investment targets.
On the debt side this can occur, when commercial lenders are considering established small and
medium enterprise loans, trade finance terms, or underwriting requirements for microcredit
borrowers. It also occurs for inter‐governmental, public sector, or non‐profit programmes to
support entrepreneurs and small businesses through the provision of: mentorships, assistance in
business planning, action planning, training, access to social networks, or the provision of market
information.
These trade‐offs also occur within the operations of a given enterprise. When making a range of
decisions, mangers face situations in which these conflicts arise. For example, is it preferable to
delay the investment in a new warehouse and delay the expansion of a new agricultural supply
company, in order for the manager to achieve the 17% return investors anticipated; if this also
means that the food supply target and hunger alleviation impact that was also promised is sure to be
missed? We can imagine social‐social trade‐offs that could also occur at enterprise level.
Investment decisions have always included value judgments. Historically the ‘financial‐financial’
trade‐offs have been viewed through the lens of maximising total return to shareholders. A range of
tools enable decision‐makers to forecast anticipated returns ex ante, and to measure actual returns
ex post. Although the decision maker clearly must weigh options, risks, and all information at hand –
the use of the models provides important insight. Therefore, of the three types, the decision maker
wrestling with a ‘financial‐financial’ trade‐off has the most complete toolset for weighing the
options.
Regarding the ‘social‐social’ trade‐off, tools are in their infancy. Industry efforts, which commenced
as disparate proprietary Social Return on Investment (SROI) measurements, have now began to
coalesce around an industry standard for gauging impact.130 Early work in this area was undertaken
by Jed Emerson, Melinda Tuan and Fay Twersky, as they developed the social return on investment
framework. Also, Kramer synthesized a number of evaluation techniques in “Measuring Innovation:
Evaluation in the Field of Social Entrepreneurship” to define practical and balanced measures of
impact. 131
These metrics crucially provide impact investors a way to compare enterprises along the social
dimension, and establish a new tool for informing these decisions.132 These techniques have
generally been applied for measuring impact ex post, but are not generally applied for predictions of
social impact ex ante. As is the case in the ‘financial‐financial’ trade‐off, the decision maker
considering a ‘social‐social’ trade‐off will have to make value judgments. The extent to which the
value judgment plays a role is arguably greater for the ‘social‐social’ assessor. Lastly, the ‘social‐
financial’ trade‐off is fraught with difficulty regarding assessment, and oftentimes stimulates heated
debate. These trade‐offs often require the greatest amount of value judgment.
130
See GIIRS (2011) and SROI Network (2011)
131
Trelstad, B. (2008), pp. 116‐117
132
At their best, these metrics provide insights regarding incremental improvements. In other words, an
investment may have helped reduce poverty in a given geography; but it is desirable to calculate the extent to
which the reduction is attributable to the investment, and not attributable to other investments or the result
of pre‐existing growth trends.
19

22. A framework for the evaluation of performance along financial and social dimensions is proposed
that can be applied at various levels – to compare the outcomes generated by entrepreneurs or
enterprises; to gauge the impact between industries, supply chains, market‐level or cluster
interventions; or to gauge the country‐level conduciveness for generating developmental
entrepreneurship opportunities and for supporting the enterprises that address them. At enterprise
level we can theoretically envision a mapping of (projected or actual) total return to shareholders
(TRS) and SROI, and this looks to be especially useful when comparing enterprises using standardised
data and measuring outcomes ex post. Also, we can imagine conducting a similar analysis for a
group of enterprises – a supply chain, a collaborative cluster, or an industry – where the values,
along both dimensions, are calculated utilising the the sum of the enterprise values while reflecting
network agglomerations with an appropriate multiplier. The difficulty in utilising this approach is the
collection of standardised data across the enterprise sample. Capital allocation decisions, lending
decisions, or decisions regarding the allocation of ‘soft’ supports from accelerators or incubators
necessitate a robust framework for projecting future performance along both dimensions.
Below we identify and incorporate the factors related to the financial and social return dimensions
applicable to an evaluative framework at a national level and we apply the framework to the
countries of SSA.
4. An Evaluation of Developmental Entrepreneurship
Opportunities at National Level in SSA
Sub‐Saharan Africa is a diverse collection of 46 countries, and each has a unique policy and
regulatory environment, set of environmental resources, profile of economic activity, technology
landscape and demographic profile. As such, in consideration of the trade‐offs described above, it is
useful for the decision‐maker to evaluate the national attributes of a developmental
entrepreneurship opportunity along both financial and social dimensions.
The WBGES demonstrates a range of considerations to utilize when comparing countries’ ability to
provide an environment in which developmental entrepreneurs will thrive, and in so doing help
alleviate poverty. First, the quality and efficiency of the legal, regulatory and governance
environments are the primary determinants of entrepreneurial activity.133 Interestingly, Ghana and
South Africa have recently been found to be less corrupt than China, India and Brazil.134 Second,
business density, or the number of registered business per member of the labor force, is another key
indicator of entrepreneurial conduciveness.135 Third, the Doing Business136 rankings are strong
indicators of business density and entry, or the number of new businesses registered relative to the
size of the economy or population.137 Forth the cost of starting a business as a percentage of per
capita Gross National Income (GNI) is also a key factor in entrepreneurial activity. The business
entry rate will increase by 1% for every 10 percentage point decrease in the cost of starting a
133
Klapper, et al. (2007), p. 2‐3, 15 ‐ 18
134
See Transparency International (2010).
135
Ibid.
136
See World Bank (2010c).
137
Klapper, et. al. (200&), pp. 18 ‐ 21
20

23. business (as a percentage of per capita GNI).138 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.139 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.140
The extent to which the national environment is supportive of 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.”141 Innovation drives the creation of jobs and economic growth; and innovation policy
seeks to foster supportive environments. Innovation policy, in developed and developing countries
alike, must take into account local conditions, economic inequalities, demographic challenges, and
activity of the informal sector.142 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.143 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.”144
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 specific market to which it
will be introduced, and the capabilities of the firm related to meeting market requirements.
Differences in total factor productivity account for roughly half the differences in income across
countries, and are generally associated with differences in technological progress.145 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
innovation potential is the educational level achieved by the individual entrepreneur.146 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
138
Ibid.
139
Ibid.
140
IFC (2010), p. 1
141
OECD (2010b), p. 32
142
OECD (2010c), p. 9 ‐ 12
143
See OECD (2009), p. 81; OECD (2010c), p. 9 ‐ 12
144
World Bank (2010d), pp. 22 ‐ 24
145
de Mel, et. al (2009), p. 23
146
Ibid.
21

24. expect, the extent to which a country invests in research and development activities is also positively
correlated to growth and innovation.147
International relationships through trade and receipt of inward FDI are also strong indicators of
innovation. The amount of inward FDI a country attracts 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.148 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.149 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.150 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.
Innovation, entrepreneurship and other small business activity occurs at varying levels across the 46
countries of SSA. A range of factors will determine the extent to which a given country provides an
environment in which MSMEs will thrive, and the extent to which their growth will capacitate
improvements along the social dimension.
Based on the foregoing considerations, we next describe the approach we employ to evaluate
returns on both financial and social dimensions. We then employ that approach to the SSA countries
to ascertain which are best positioned to impact poverty through MSME growth and hence which
are most attractive to development entrepreneurs.
4.1Financial Return Dimension
Along the financial return dimension we have created a composite index which enables a
comparative analysis across the 46 countries of SSA. Readily available data allows the eight factors
which collectively provide a comprehensive view of a given country’s environment for supporting
MSMEs ability to generate returns to capital to be evaluated. Table 2 describes these factors, which
are captured in the financial returns index:
Factor Metric Source
Market Size 2011 GDP in billions of USD, measured in IMF
purchasing power parity
Market Growth Post crisis real GDP growth is measured utilising a IMF
simple average of 2009 data, 2010 data, and the
2011 estimate
Global Competitiveness Global Competitiveness Index, which captures World Economic
assessments of institutions, infrastructure, Forum
macro‐economic environment, health and
education, market efficiencies, financial market
development, technological readiness, market
size, business sophistication, and innovation
Attractiveness for FDI inflows as a percentage of GDP UN Conference
Inward Foreign Direct on Trade and
147
Ibid.
148
Şeker (2009), p. 2
149
OECD (2010c), p. 65 – 66, p. 83
150
Gorodnichenko et. al. (2009), p. 15, 28
22