The Folly of African Entrepreneurship

Rejoice Ngwenya, June 23 2010, Harare, Zimbabwe

Zimbabwe, like most developing African countries burdened with the yoke of authoritarian oppression, force-feeds citizens with policy prescriptions only meant to satisfy political egos of ruling elite. Imposing government ministries of ‘small and medium enterprises’ and ‘indigenisation’ would not suddenly turn Zimbabwe into an industrialised country.

Similarly, investing millions of United States Dollars in education infrastructure to offer business administration training would by itself not achieve much in economic growth. It is in this context that my cousin who teaches block release students of Masters of Business Administration at a derelict Zimbabwean state university in the midlands city of Gweru makes a stunning observation about the folly of African entrepreneurship. Notwithstanding the exploits of world-renown African businesspersons like Mo Ibrahim [Sudan], Patrice Motsepe [South Africa], Strive Masiyiwa [Zimbabwe] et al, there is a tendency for emerging economies to over emphasise the virtues of trading as symptomatic of entrepreneurial instincts in Africans. Vast flea and vegetable markets in Cairo, Casablanca, Accra, Nairobi, Lusaka, Harare and Johannesburg cannot be credible litmus test for successful business, because, according to my cousin, they do not contribute to real economic development. This school of thought is supported by 20th Century economist Joseph Schumpeter.

Zimbabwean ministers of ‘small enterprises’ and ‘indigenisation’ – Sithembiso Nyoni and Saviour Kasukuwere respectively – epitomize the flourishing species of authoritarian regime praise singers who perpetuate the lie that simply buying and selling amounts to entrepreneurship. Ironically, it is dictators that buy votes by deceiving citizens into non value adding, non innovative ‘income generating’ activities only meant to fill up ballot boxes. Wikipedia isolates Israel Kirzner as one in a few economists who associates entrepreneurship with innovation or value addition. Importing clothes and cars from Dubai and disposing them off to Harare consumers has no value addition. Countries like Zimbabwe, Swaziland and the Democratic Republic of Congo are politically unstable, with a productive industry decimated by decades of senseless dictatorship, yet their economies are said to have ‘survived’ because of ‘enterprising and resilient citizens’. What a load of hogwash!

Says Wikipedia: “The entrepreneur is widely regarded as an integral player in the business culture of American life, and particularly as an engine for job creation and economic growth.” A country develops while its economy grows when citizens create new products and services that result in more people being employed, consuming and adding to the national fiscus. During electoral campaigns, dictators like Robert Mugabe splash out computers, buses and money to political sympathisers under the guise of ‘economic development and empowerment’. As a result of this patronage, the country fails even to produce cooking oil, soap and shoes because there are no efforts to encourage sustainable innovation. My cousin therefore is correct that Zimbabwe, like most African countries suffering from authoritarian dictatorship, will remain underdeveloped until we transform our political thinking.

No doubt the MBA students he encounters are victims of an education system that was meant to produce workers rather than innovators. It is a poisonous system that infects even financial institutions like Standard Bank Zimbabwe who seek survival from customers with ‘proven’ salary and wages rather than ‘risky’ entrepreneurship. There is a link between sustainable entrepreneurship and financing, and this chain translates into long term survival of the banking sector. In a 2009 paper entitled “Banking Deregulations, Financing Constraints and Firm Entry Size” Harvard academics William R. Kerr and Ramana Nanda quote Michelacci and Silva who stress that “better financial access explains why local entrepreneurs operate larger firms...” In other words, the nexus between finance, entrepreneurship, sustainability and long term growth is an undeniable fact of life.

The Standard Bank, like most conservative ‘orthodox’ commercial banks, has this skewed policy imprint confusing innovation with entrepreneurship. And for good reason. The default rate for unsecured loans has been known to bring down the banking sector. Yet Kerr and Nanda have it on good authority that restrictive regulations in financing innovation are a negative force in the economic growth projectile. This is why it is critically important for us Africans to understand and appreciate the meaning and implication of true entrepreneurship. We must exorcise the demon afflicting banks like Standard that only salary cheques are safe as collateral in securing loans.

At one time in the early part of this decade, Zimbabwean banks or more specifically the financial sector, was registering phenomenal ‘growth’, yet citizens were getting poorer and GDP was shrinking. This was prelude to the ‘annexation’ of banks by Reserve Bank Governor Gideon Gono, and eventually others collapsed under accusation by [Gono] of perpetuating impropriety. It was during the same period that inflation spiralled to six digits while Zimbabwe’s productive sector almost disappeared. But the strange phenomenon was of a booming ‘entrepreneurship’ in cross border trade, flourishing flea markets and countless trips between China, Dubai and Zimbabwe. In rural areas, young men were digging up the country side to extract and sell gold. Something was clearly wrong.

I therefore conclude this treatise by reasserting the need for us Africans to create new social and business solutions as an entry point to entrepreneurship. Deficits in public communication, governance, food, education, health, industry, commerce and infrastructure are an ideal opportunity to innovate for profit. This is what drives industrialisation, not selling jeans at open markets or vegetables and curios along the freeways. Moreover, financial institutions like the conservative Standard Bank of Zimbabwe defeat the cause of entrepreneurship by not promoting individual inventors but relying on wage and salary remittances. At a time when national productive capacity is below 40%, it is difficult to perceive how a serious bank can ignore entrepreneurs and non-profit organisations on its menu of attracting business. In its haste to pour scorn on ‘flea market entrepreneurs’, the bank has adopted collective condemnation even of those self-employed consultants who sustained it with valuable foreign currency deposits when the Zimbabwe dollar was toilet paper. What is now urgent is to overhaul Zimbabwean national economic policy to foster a commitment to innovation rather than flea markets and Chinese toy shops.

*Rejoice Ngwenya is director of Coalition for Liberal Market Solutions and an affiliate of AfricanLiberty.org *