“Borrow from your family and friends if they believe in your idea”, “save up your pocket money”, “if you really want it that bad you will save a portion of your salary” are just some of the phrases to do away with in developing economies. If they are ever done away with we should all say “good ridden”; accentuated with a breath of relief!
The superficial rhetoric here is to elevate a tenacious passion for a business, simply then to be accompanied by a little money laying around in some associate’s piggy bank. This is the generic start-up kit for the burgeoning entrepreneur, and it is being sold continent wide.
Indeed this can be traced back to economically and financially illiterate proponents of this notion. Yet, this is only marginally different from the advice given by privileged established executives and policy makers. They will tell you that the SME bank is there, and if your business idea is good enough, the SME bank will finance you!
What both misguided notions have in common is the complete omission of a hard fact; finance spins within confined circles that are more exclusive than society is comfortable in admitting.
When this fact is contested, inferior ideologies such as populism and socialism are hurled by intellectual guardians meant to secure the continuity of these confined circles.
Unfortunately, the aforementioned misguided notions that sell impotent superficial rhetoric have become suffice excuse for both nescient economic governance and spineless policymakers unable to confront the structural truths that confine entrepreneurship.
The former we should do away with, in the form of creating institutions that garner erudite incumbents. The latter should be motivated into the belief that only by challenging the structural inequities of our economies, will the imbalances that keep growth low in our region be overcome.
On Wednesday, Finance Minister of South Africa, Malusi Gigaba, giving his mid-term budget made a particular remark, which immediately resonated with younger entrepreneurs like Vusi Thembekwayo who have experienced the structural confines of finance.
Gigaba alluded to the fact that there is a fallacy in banking. He said that the “track-record” story is used to block-out black firms, and that nobody was born with a track-record.
Of course, this can easily be dismissed as populist political rhetoric, supposedly meant to instigate racial tensions.
But is it? Impartial analysis, cognisant of structural realities would help understanding the underlying credence to his statement.
Concededly though, Gigaba must understand that banks are not modelled as venture capital, and to a large extent it is misguided to expect their lending to new ventures. Gigaba’s remarks are better suited to engage in a conversation takes a context of why finance in its many forms, remains confined to entrepreneurs of a certain background?
This would identity the short coming of policy potency towards entrepreneurship in our region.
Let us insulate what occurs here in Zimbabwe. Consider the growth of successful new businesses in the last few decades. There is only a handful and in identifiable fields such as agro-processing, financial services, or telecommunications.
So analysis would not be so exhaustive.
Firstly, what these companies had at conception was that their founders were already respected and connected people.
These are entrepreneurial essentials, and they cannot be dispersed by policy means. Simply, it cannot be a national policy to disperse the same social, technical and financial capital to all potential entrepreneurs in a country, which an executive has established for themselves over years in their craft.
A second, and more prominent demographic, is that of founders who have a relatively wealthy background before venturing into a new business.
What these kind of founders have are key variables to success such as time, cushion for failure, access to patient capital, and industrial networks that propel their businesses to large company status.
These variables can be summed up as the benefits of legacy! And again, legacy carries entrepreneurial essentials that cannot be dispersed by implementing national policy.
These two demographics show that more consequential to entrepreneurial potential is an individual’s background.
These privileges of background have yet to find a comparable policy parity that enables broad dispersion for entrepreneurs in our economies.
More simply, when Africa bets on entrepreneurship to have a potent uplifting effect on our economies, the fact is these bets on policy do not match the few privileged entrepreneurs.
There are empirical facts to this point. According to a McKinsey report of 2016 on large companies that drive our economies, Africa has 400 companies with revenue of $1 billion or more, and 700 with revenue of at least $500 million.
It is interesting to assess the demographic that make up founders or owners of these large companies. McKinsey states that at the aggregate level, 27 percent are foreign-based multinationals, half of which, head-quartered in Europe North America. That is obviously a colonial legacy.
But even of the firms that consider Africa home, over half the large firms show is a pattern of founders of these companies being either experienced executives venturing out on their own, or founders who are beneficiaries of economic legacy.
That means over 75 percent of the largest companies on the continent resemble no policy effect. Clearly then, policy hasn’t started to take any notable effect at the top of entrepreneurial success. So until policy finds a means to disperse an equivalent effect to the “potential premium offered by background”, policy will remain impotent in creating large companies from local entrepreneurs with a privileged background.
This is a global truth, just more severe in our region. In other continents as the McKinsey report further indicates, family businesses are no less than 25 percent of large companies. This lends credence to the uniform fact here that background is more telling of entrepreneurial future.
Consider some of the celebrated entrepreneurs of our time, the Mark Zuckerberg’s, Sumner Redstone’s, and Bill Gates. While it would be unfair to diminish their entrepreneurial skillset and sheer diligence, background was more potent on their eventual outcomes. The notion of background is uniform globally.
However, it is a serious ailment in our region because unlike elsewhere, we lack basic social safety nets that avail some degree of benefits that background beneficiaries have. This is where policy can start to look at in terms of closing down the disparity in entrepreneurial potential between background beneficiaries and wider entrepreneurs. In our region, policy is still far less effecting on entrepreneurial potential than policy, and that is a structural matter to be addressed. It surely does not begin with “Borrow from your family and friends”, “save some of your salary”, or “going to the SME bank”.