Africa’s economic development has long been a topic of global discussion, with many experts advocating for the entrepreneurial ecosystems (EE) approach to foster growth, particularly in lagging economies. However, recent research challenges this narrative, suggesting that Africa’s high entrepreneurship rates—driven largely by necessity rather than opportunity—may not be the solution. Instead, strategies inspired by East Asia’s development model and Schumpeterian growth theory emphasize the need for large, productive firms and the adoption of existing technologies to drive sustainable economic progress.
The Entrepreneurial Ecosystems Approach: A Misguided Strategy?
The entrepreneurial ecosystems (EE) approach focuses on creating an environment where infrastructure, financing, regulations, and skilled labor converge to support business growth. Proponents argue that fostering entrepreneurship can drive economic development in Africa’s poorer nations. However, Africa already boasts the world’s highest entrepreneurship rates, with a significant portion of its population engaged in self-employment due to limited job opportunities. This raises a critical question: Is more entrepreneurship truly the answer?
A research team, including Professor Alex Coad from Waseda Business School, Japan, alongside Dr. Clemens Domnick and Dr. Pietro Santoleri from the European Commission’s Joint Research Centre, and Assistant Professor Stjepan Srhoj from the University of Split, Croatia, critically examined the relevance of the EE approach. Their study, published as an Open Access article in The Journal of Technology Transfer, highlights the limitations of EE for Africa’s unique economic landscape.
“We were concerned that a number of entrepreneurship scholars seem to be pushing an agenda for Africa’s economic development based on personal ideology rather than empirical evidence,” says Coad. Their analysis draws on alternative frameworks—East Asia’s growth strategies and Schumpeterian growth theory—to propose a more effective path forward.
Lessons from East Asia: The Power of Large Firms
East Asian countries like Taiwan, South Korea, Singapore, and Malaysia achieved rapid economic growth by focusing on large, productive firms, robust government support, high-tech exports, and foreign direct investment (FDI). These nations prioritized the development of multinational corporations (MNCs) and targeted specific industries to drive growth, a stark contrast to the EE approach, which emphasizes small firms, minimal government involvement, and local markets.
For example, South Korea’s government played a pivotal role in nurturing conglomerates like Samsung and Hyundai, which became global leaders in technology and manufacturing. Similarly, Singapore attracted FDI by creating a business-friendly environment, enabling it to integrate into global value chains. While Africa’s challenges—such as infrastructure gaps and political instability—differ from those of East Asia, the researchers argue that these strategies can be adapted to suit the continent’s context.
Unlike the EE model, which often supports informal self-employment and small businesses, East Asia’s approach demonstrates the importance of scaling firms to achieve high productivity, create jobs, and boost exports. Africa, with its scarcity of large and medium-sized firms, could benefit significantly from policies that encourage firm growth and attract MNCs.
Schumpeterian Growth Theory: Technology Adoption Over Innovation
Schumpeterian growth theory provides another lens for understanding Africa’s economic needs. The theory posits that a country’s growth strategy should depend on its proximity to the global technological frontier—the level of technological advancement in leading economies. Countries far from the frontier, like those in Sub-Saharan Africa, can achieve faster growth by adopting existing technologies rather than investing heavily in costly, innovation-driven research.
Sub-Saharan Africa ranks lowest in economic complexity and received less than 1% of global venture capital investment between 2020 and 2023. This suggests that the continent is far from the technological frontier, making technology adoption a more practical and cost-effective strategy than fostering innovation through entrepreneurship. By focusing on absorbing proven technologies, African economies can improve productivity and competitiveness without the high costs associated with frontier innovation.
The Case Against More Entrepreneurship
Africa’s high entrepreneurship rates are often driven by necessity, with many individuals turning to self-employment due to a lack of formal job opportunities. However, empirical evidence from the study reveals several critical insights:
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Lack of Large Firms: Africa has a severe shortage of large, productive firms, which are essential for driving high productivity, creating quality jobs, and supporting small- and medium-sized enterprises (SMEs) through supply chains.
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Struggling Small Firms: The continent’s small, informal firms often fail to scale into medium-sized enterprises, limiting their economic impact.
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Negative Correlation with GDP: High self-employment rates are associated with lower GDP per capita, suggesting that excessive entrepreneurship, particularly by low-performing entrepreneurs, may hinder rather than help economic growth.
Coad emphasizes, “The African continent is in last place in terms of economic development, although it comes first in terms of having the world’s highest entrepreneurship rates. Boosting entrepreneurship further seems like a step in the wrong direction. The bottleneck is a lack of large firms.”
A Path Forward: Building Large Firms for Sustainable Growth
To achieve sustainable economic development, Africa should shift its focus from fostering more entrepreneurs to building large, productive firms. Key strategies include:
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Government Support: African governments can emulate East Asia by providing targeted support to high-potential industries, such as manufacturing or agribusiness, through subsidies, tax incentives, or infrastructure development.
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Attracting FDI and MNCs: Creating a business-friendly environment to attract foreign investment and multinational corporations can help integrate African economies into global markets.
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Technology Adoption: Policies that facilitate the adoption of existing technologies—through training programs, technology transfers, or partnerships with MNCs—can boost productivity without requiring expensive innovation.
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Reducing Informal Self-Employment: Addressing the root causes of necessity-driven entrepreneurship, such as unemployment and lack of formal jobs, can help reduce inefficient self-employment and encourage firm growth.
Entrepreneurial ecosystems approach
While the entrepreneurial ecosystems approach has been a popular framework for promoting economic growth in Africa, it may not be the most effective solution for the continent’s unique challenges. Africa already has a surplus of entrepreneurs, but it lacks the large, productive firms needed to drive sustainable development. By drawing on East Asia’s successful strategies and Schumpeterian growth theory, African policymakers can prioritize building large firms, attracting foreign investment, and adopting existing technologies. This shift in focus could unlock Africa’s economic potential, creating jobs, boosting productivity, and fostering long-term prosperity.
