Entrepreneurship and Structural Change – Foresight Africa 2024

Providing entrepreneurial opportunities for young people in Africa

Ada Osakwe, Founder and Managing Partner of Agrolay Ventures and Nuri Juice Company

The problem is that these businesses are largely self-employed in the informal sector, a category the International Labour Organization classifies as “vulnerable employment” – 95% of employed young people in Africa fall into this category.³ In the United States, Europe and Asia, the figure is less than 50%. Vulnerable employment is reflected in low productivity, low incomes and difficult working conditions.

Entrepreneurship in Africa, whether in the informal or formal sector, is often plagued by the following problems:

1. Lack of access to adequate financing needed to start, sustain and grow a business.
2. Inadequate infrastructure leads to high operational costs.
3. Deteriorating macroeconomic conditions.
4. Government policies do not support business.

These issues, combined with low economic growth and weak social protection systems, mean African economies are expected to face even greater youth employment challenges in the future.

As an entrepreneur, I have experienced most of these hurdles first-hand. In 2016, I launched Nuli Foods, a mid-sized agribusiness that produces nutritious beverages using locally grown fruits and vegetables. Nuli has contributed to Nigeria’s economic landscape by creating jobs for youth, reducing post-harvest losses, generating stable incomes for smallholder farmers, and providing access to better nutrition for Nigerians. However, building this business came with significant challenges, including difficulty in obtaining financing from banks and public institutions, high operating costs, crippling inflation rates, and volatile government policies.

Anyone looking to start a business in Africa faces a myriad of challenges, but African youth remain highly entrepreneurial, and entrepreneurship is seen as a solution to Africa’s employment slump. This is in part due to the growing influence of digital technologies, which offer new opportunities for innovation across sectors. As a result, billions of dollars have been pumped into entrepreneurship development in Africa over the past decade. However, most publicly and donor-funded youth projects have fallen short in providing the systemic support that young African entrepreneurs need. For example, a recent Voxdev report found that around $1 billion is spent annually on entrepreneurship training in developing countries.^Four The report also points out that the returns from these investments do not deliver economic or social impacts.

Rethinking Entrepreneur-Led Job Creation in Africa

We must begin to rethink the entrepreneurship support models that exist in Africa, lest young people are misled by false narratives of future wealth and stability. Academic institutions, governments, donors and capital providers should be more proactive in fostering a more favorable environment for entrepreneurship to thrive, with the intention of creating large-scale jobs in Africa.

One approach that should be considered to achieve this is to provide targeted support to “SME Eagles”.

Small and Medium Enterprises (SMEs) account for 80-90% of employment on the African continent and contribute significantly to socio-economic development. Some of these enterprises have demonstrated remarkable resilience by perfecting their business models, building robust operations, increasing revenues, and scaling their operations in the face of the unique challenges facing Africa. We call these enterprises the SME Eagles.

SME Eagle has the capacity to provide stable wage employment to millions of young people and serves as a hub for job creation and retention. One example is a 150 ton-per-day milk processing plant in northern Nigeria owned by a 30-year-old entrepreneur. To meet the needs of the plant, the entrepreneur developed an effective “contract farming” model with milk collection centers where rural pastoralists, mostly young people and women, drop off their milk daily in exchange for an income. Today, after just one year of operation, 18,000 farmers are part of the SME Eagle network. That’s 18,000 new stable jobs, with the potential to create thousands more as the plant expands production.

Wage employment is also created when new enterprises are established. SME Eagles are tried, tested and led by experienced entrepreneurs in proven markets, reducing the risk of failure by new entrepreneurs copying their businesses. Socially innovative franchise programs that match young people with these businesses can be considered, especially in the most impactful sectors. As SME Eagles share the process and business model with young people, they get the benefit of leapfrogging the trial and error stage of entrepreneurship and the peace of mind of establishing a proven business with existing market demand. Additionally, these young people also receive essential leadership training, mentorship and business structure support.

To foster entrepreneur-led job creation by SME Eagles, affordable capital should be made available through blended finance mechanisms, for example, grants and other preferential funding, credit guarantees, interest rebates and other tailored financing solutions could be made available for the acquisition of SME Eagle franchise businesses and the establishment of SME Eagle entrepreneurial linkage programs.

Ultimately, for entrepreneurship to live up to its job creation promise, small business eagles need to be allowed to thrive. Focusing government, donor and private sector financial and policy support on small business eagles can reduce the high risk of entrepreneurship failing. Providing already de-risked, high-impact and high-productivity local small businesses with business policy and institutional support, effective government regulations and incentives, workforce training subsidies and affordable financing will create more resilient forms of entrepreneurship, promoting stable job creation and inclusive economic growth for Africa’s youth.