Entrepreneurship, Small- and Medium Size Enterprises and Economic Growth and Development in Africa.

1. Introduction

Africa is the world¡¦s poorest continent. However, an increasing number of countries in Africa are beginning to show signs of economic progress, reflecting the implementation of better economic policies and structural reforms. Some countries in Africa have successfully achieved macroeconomic balances and have improved economic efficiency. Greater priority has also been given in public spending on health care, education, and other basic social services. Apart form this there has been a growing movement that encourage cooperation between the state and civil society.

Despite these positive signs African economies remains fragile and vulnerable to domestic and external shocks, and the continent faces a significant challenge to catch up due to ground lost after the decolonization. Despite some upturn in economic growth rates, poverty is still widespread and in many parts of the continent extremely acute.

During February 2001, the managing director of the IMF, Mr Köhler visited the African continent and identified three main areas of progress in the region:

¡P ¡§an awareness in Africa that any effort to reduce poverty must start with ¡V and build upon ¡V peace, democracy and good governmental home.

¡P A recognition that the prospects for rapid growth . . . will depend on the ability of these countries to unlock the creative (entrepreneurial) abilities of their people¡¨

(This approach will of course require investment in human capital and infrastructure as well as the right economic policies and institutions. It requires, especially, an economic climate in Africa that encourages private sector investment with special attention on SME cum entrepreneurship development.)

¡P ¡§an increasing awareness among African leaders that stronger regional cooperation and integration is indispensable to increase the competitiveness of their economics¡¨ (Köhler, 2001:69)

The dilemma in which Africa finds itself can be illustrated by the fact that its contribution to global production is less than 1% of the world trade. Furthermore its share in exports of manufactured goods is nearly zero percent. The whole of Africa has 7 million telephones (excluding the 5 million of South Africa). Less than 20% of the population of Africa has access to electricity. The 48 countries have a median GDP of just over US $2 billion which is about the output of a town of 60,000 in a rich country. In order to prevent this poverty situation to become worse it is estimated that Africa has to achieve economic growth rates in excess of 5% per annum. (Naudé, 2000). In this growth process entrepreneurship becomes an essential component of the economic development process. Economists and management scientists agree that entrepreneurship is indispensable for economic growth and development and this is especially true in the African-case.

In this paper I will argue that the African Renaissance is dependent on the successful fostering of the huge entrepreneurship potential of the African people.

2. The re-discovery of the entrepreneur and the SME-sector.

In recent years entrepreneurship and the nurturing of SME¡¦s have become the dominant themes of development economics. This re-discovery of the importance of the spirit of free enterprise was undoubtedly prompted by the failure of centrally planned socialist economies. It was also enhanced by the achievement of impressive prosperity by certain East Asian and Western countries as a result of mobilising the creative energies of entrepreneurs and by reaping the benefits of relatively unconstrained competition.

Entrepreneurship was, and is still often treated in theory as the vague and unquantifiable force which brings together labour, and capital assumes the risks of production and distribution and on which the whole success of the capitalist system depends (Naudé, 1999: 2).

Schumpeter made the entrepreneur the focal point and key to the dynamic of economic development and growth. It is entrepreneurs who put together new combinations, and whose actions have consequences on the basis of their organizational skills, their creativity as decision makers, and the distinctive opportunity structures (the settings, circumstances or situations within which the decisions and choices are made. Schumpeter (1934) stated that entrepreneur is the decision maker in a particular cultural context who commands a range of behaviours that exploits the opportunities. His idea that the entrepreneur functions primarily as a creator of innovations in the production process has influenced much of the literature on entrepreneurship in developed economies. Alternative explanations of the entrepreneurial role have focused more on the entrepreneur¡¦s ability to organize rather than to create (Spring and MacDade, 1998:2).

The natural home of the business entrepreneur is the small and medium size enterprise sector which in recent times assumed a position of almost universal orthodoxy. In all the successful economies of the world, they figure, as a dominant force. The impressive economic performance of certain South East Asian such as Taiwan, Korea and Western countries has focused the attention of business leaders, policy makers and academic analysts on the prominent role played by SME¡¦s.

Drawing on the experience of these countries and seeing what tremendous influence SME¡¦s can have on the economic growth and development of a country, some African countries also resorted to it as the engine for economic growth and development. Leaders on the African continent also realizes that the SME sector can make a significant contribution to economic growth, employment generation and social progress. They are the most effective job creators, because they are generally more labour intensive than larger enterprises and generate more direct and indirect jobs per unit of capital invested. They provide a seedbed for entrepreneurial talent and contribute to competition within an economy. They aid the promotion of free enterprise and self-sufficiency by creating and spreading wealth to the grassroots level and as a result enhance economic and political stability.

In many developing economies it has been found that the large-scale enterprises have had limited success in generating job-creating economic growth. The concentration of economic power and the capital-intensive nature of large business and manufacturing organizations were in many instances in direct conflict with more generally held goals of social and economic development. SME¡¦s in contrast were found to employ a large proportion of the human capital. They also provide a productive outlet for expressing the entrepreneurial spirit of individuals and to assist in dispersing economic activity throughout a country.

3. Human capital, entrepreneurship and SMEs

The term ¡§human capital¡¨ coined in the 1960s by Schultz, refers to the fact that labour is not just a homogenous factor of production, but is a differentiated and mouldable input into production (Cypher and Dietz, 1997:384). Human capital also refers to skilled labour which is labour that function on a higher level and has the ability to create new ideas and new methods in economic activity (Ray, 1998:00). It is this type of human capital that contains the seed of entrepreneurship within itself, but needs improvement especially in developing countries, like in the case of Africa, through education, work training, on-the-job training, health care, nutrition and sanitation in order to germanate and grow.

Naudé (1999:11) says that apart from the direct evidence from cross-country regressions that point to the significant effect of human capital accumulation on economic growth, case studies of developing economies provide dramatic illustrations of the potential significance of human capital.

When considering the role of human capital (and eventually entrepreneurship) in economic growth, it is particularly instructive to review the East Asian growth experience. In four of the NIC¡¦s (newly industrialising countries) of East Asia namely Hong Kong, Singapore, South Korea and Taiwan, rapid and sustained growth in per capital GDP between 1960 and 1990 averaged 6% - 7% per annum. Accompanying this rapid output growth was rapid growth in human capital accumulation and the growth in secondary and tertiary education.

According to the World Bank (1993) approximately 66% of the observed growth in NIC¡¦s can be attributed to the accumulation of physical and human capital, and education is the single largest contributor among these factors.

The question that can be raised is how does ¡§human capital¡¨ contribute to economic growth?

Referring to Benhabib and Spiegels endogenous growth model, Naudé (1999:13) states that human capital affects growth through its effect on total factor productivity. This takes place through two channels. First, as Romer (1990) sees it, human capital influences productivity directly by determining the capacity of nations to innovate new technologies, thus creativity through entrepreneurial actions in countries becomes the dominant factor.

Secondly, human capital levels affect the speed of technological catch-up and diffusion ¡V i.e. the ability of a country to adopt and implement new technologies from abroad as a function of its domestic human capital stock. It should be noted that the World Bank (1993) concluded with regard to the East Asian growth experience that higher levels of labour force cognitive skills permit better firm-level adoption, adaptation and mastery of technology. The question that can be asked is whether most African countries with its lower levels of labour force can really accomplish this?

A question that can also be asked is, why does capital not flow readily from rich to poor developing countries? Apart from the political instability and other related factors the role of human capital in the endogenous growth theory can also be used to explain the fact that capital does not flow from rich to poor countries. Physical capital in particular fails to flow to poor developing countries because of their relative poor endowments of human capital which acts as a complement to improve the efficiency of physical capital.

The human capital accumulation can broadly be seen as to include formal education, on-the-job training, basic scientific research, learning-by-doing, process innovations, product innovations and industrial innovations. Iyigun and Owen (1998) considers human capital as consisting of both ¡§professional¡¨ or skilled labourers and entrepreneurs.

In their definition the entrepreneurs provide the economy with new ideas, products and ways of doing things.

Thus one can quite safely deduce that the higher the level of human capital the greater the portion of the labour component that are entrepreneurs and consequently the greater the provision of the economy with ideas, products and ways of doing things.

Consideration of the low level of human capital on the African continent therefore limits the entrepreneurial component and consequently retards economic growth and development.

The deficiency characteristics of entrepreneurship that makes it an important force for economic growth, and that differentiates it from more skilled labour are (Naudé, 1999:15):

¡P Entrepreneurial activity is risky. There is a positive probability that entrepreneurial activity will result in failure, or an outcome with very low payoff.

¡P Entrepreneurs learn by doing; entrepreneurial skills are honed by investing time working in an entrepreneurial venture.

¡P Entrepreneurial human capital may be more productive in the development of technology. Entrepreneurship thus determines the level of technology. This idea can be traced back to Schumpeter.

Recently it has been shown that the differences between entrepreneurs and professional / skilled labour is important for the composition and effect of human capital on economic growth (Iyigun and Owen, 1998:454). More specifically stated:

¡P Entrepreneurial human capital plays a relatively more important role in intermediate income countries. This result is due to the riskiness of entrepreneurship. For instance, in more developed economies individuals may be expected to allocate fewer resources towards entrepreneurship because good, safe alternatives to the risky activity exist. The level of economic development and growth rate of a country is in itself a determinant, not only a consequence, of entrepreneurship. Thus;

¡P Professional labour is relatively more important in higher-income economies

¡P Because there are more than one way of accumulating human capital, an inefficient allocation of an individuals time between schooling and gaining entrepreneurial experience may occur

Economies that have a lack of either entrepreneurial or professional human capital may end up in a development trap. An example of the latter may be the countries of the former East Bloc, where professional human capital was accumulated to the detriment of entrepreneurial human capital. Even worse is the situation in Africa where a large number of countries have to little of either entrepreneurial or professional human capital. More than 90% of the human capital are unskilled labour, resulting in a situation where no or even negative economic growth and economic development situation occurs. Although it may seem, due to the vast number of small and micro enterprises, if adequate entrepreneurial human capital does exist, this is far from reality. These small businesses are merely forms of livelihood, ways to be part of subsistance economies with no real value being added to economic growth and development. In fact they are actually sharing poverty.

4. Government, financial systems and entrepreneurship.

According to Naudé (1999:18) two institutions have been identified as vital for reducing the uncertainty that may be inhibiting entrepreneurship, namely the government and financial system.

With regard to governments and constitutions it is shown that low security of property rights over physical capital, profits and patents may reduce incentives and opportunities for entrepreneurs to invest, innovate and obtain foreign technology. Furthermore, cumbersome and dishonest government bureaucracies, which are numerous on the African continent, may delay the distribution of permits and licences or other forms of assistance, thereby showing down the process of creative destruction.

It is especially in Africa where the institutional requirements on government for growth and economic development is lacking. This disfunctionality of African governments according to the Bates-Morrison Thesis (Collier, 1977) is a result of a number of African Governments having permitted only a low level of civil liberties whereby ordinary people are denied the channel of popular protests. Secondly, the argument that African governments¡¦ credibility have been severely eroded by its reneging on past reform promises.

As far as the role of financial institutions on entrepreneurship is concerned another one of Schumpeter¡¦s ideas, namely, that the services provided by financial intermediaries are important for technological innovation by entrepreneurs to take place, has recently been taken up (King and Levine, 1993a; 1993b).

Firstly it is especially commercial banks that are important, in that they provide financial risk management and investment information services to entrepreneurs. Effective financial risk management stimulates economic growth by increasing the rate of human and physical capital accumulation and by improving the efficiency with which economies use that capital.

In the second instance the financial system fulfills the role of a selection mechanism. They evaluate prospective entrepreneurs, mobilize savings to finance the most productive activities, and diversify the risks associated with annovations brought forward by entrepreneurs.

The importance of the financial system and appropriate institutional framework should be clear, and as Naudé (1994) puts it: ¡§Government policies towards financial institutions therefore have an important causal effect on the long run growth¡¨.

5. Some realities of African entrepreneurship and SME¡¦s entry into entrepreneurship

If we now take a closer and more practical view of entrepreneurship and SME¡¦s on the African continent it may prompt the reconsideration of previous dictums or assert the applicability of new theories. However, this is not the objective of this talk, but rather to highlight the discussion with some facts.

In Zaire, MacGaffey (1998) shows that the lack of state support for business activities forces survival strategies to new heights as entrepreneurs provide missing infrastructure, use substitute currencies, and pursue unusual trade networks to maintain ¡§the second economy¡¨ in the absence of the first. The scope of these entrepreneurial enterprises encompasses large and small firms, mostly in the informal sector, because there is previous little left of the formal sector.

MacGaffey borrows from Schumpeter¡¦s definition that if entrepreneurs ¡§have not accumulated any kind of goods, they have created no original means of production, but have employed existing means of production differently, more appropriately, more advantageously¡¨.

Entrepreneurs function outside the defunct official economy using creativity and ingenuity, in the force of ¡§insurmountable obstacles¡¨. These include the collapse of the banking and transportation systems, the unavailability of foreign exchange, the decline of public services and administration, the collapse of supply systems, and the harassment, extortion, and arrest of entrepreneurs.

In short entrepreneurs fill in the functions of a government that has failed to supply the infrastructure that is conducive to business in general and small and medium size enterprises specifically.

Daniels (1998) questions whether the supply of labour (human capital) hypothesis (surplus labour with limited skills and access to capital) or the market demand hypothesis (entry influenced by consumer demands for micro and small enterprises) holds. In this case both influence entry into commerce, but the labour supply hypothesis is supported by evidence from low-profit SME¡¦s in which people turn to these informal sector enterprises as alternative income sources in a declining economy. In contrasts the high-profit entry model is not driven by excess supply of human capital, nor is it affected by changes in the GDP; these entrepreneurs have some access to capital as well as greater business experience. Still, there are entry barriers to high-profit entrepreneurial activities, and these include capital, experience, and government regulations.

6. Public policy and private initiatives in entrepreneurial development.

Entrepreneurial activities are highly affected by public policies and their level of enforcement. As mentioned previously the business sector in Africa especially SME¡¦s frequently suffer from harassment by government officials. Even within the formal sector private enterprises often do not find a conclusive environment within the financial system, reducing tariff restrictions, providing adequate infrastructure (Himbara, 1998), producing educated skilled human capital (Naudé, 1998), ensuring access to technology, and creating markets (Blewett and Farley, 1998).

Specifically focusing on policy, Himbara (1998:219-232) departs from conventional interpretations that hold that colonial governments used restrictive policies to impede the development of indigenous African Enterprises and to restrict them to a few types of industries. He maintains that such interpretations are myths and argues that instead of impeding or obstructing African entrepreneurs, British colonial policy in Kenya fostered an indigenous entrepreneurial class by promoting SME¡¦s in the informal sector as a base from which an indigenous capitalism could develop.

Government policy in Kenya encourages their people to establish medium-, and large-scale businesses in commerce and industry, but, Himbara argues, most Kenyan Africans are not yet ready for the step. He attributes the stagnation in the private enterprise sector to policies that impose ¡§capitalism from above¡¨. These policies benefit reigning politicians and high-level civil servants rather than indigenous private sector business persons. The misunderstood colonial approach was vindicated in the 1980¡¦s when the government began to integrate the small-scale and informal sectors into its overall policy regime.

In 1994 the new South African Government inherited an apartheid economy with specific problems, which required the urgent implementation of an appropriate economic development strategy. Since this time the new government produced a number of important policy documents.

All these documents (National Vision; Reconstruction and Development Programme; Growth, Employment and Redistribution Strategy) proposed both long-term restructuring and short-term stabilisation of the economy. One of the most important however, was the National Strategy for the Development and Promotion of Small Business in South Africa (Dept. of Trade and Industry, 1995.)

Key objectives of the national small business strategy include amongst others:

¡P Create an enabling environment for small business

¡P Address the legacy of apartheid-based disempowerment of black business

¡P Support the advancement of women in all business sectors.

¡P Strengthen cohesion between small enterprises

¡P Prepare small business to comply with the challenges of an internationally competitive economy.

An elaborate infrastructure was set in place to support this strategy such as the National Small Business Council, Provincial SMME desks, local Business Service Centres, etc. However, real commitment and a number of other reasons brought along dismall failure of some of these structures.

7. Structural adjustment programmes

This address in the present period would not be complete without touching on the global allocation of resources. Here we focus on the impact of externally induced policies, such as the SAP¡¦s (Structural Adjustment Programmes) and foreign assistance and control.

How entrepreneurs react to these external pressures, and how these programs affect the ability of African entrepreneurs to compete in their own domestic markets and succeed in the international marketplace should also be considered.

How do SAP¡¦s affect entrepreneurs? SAP¡¦s particularly affect those entrepreneurs that form part of the informal sector, in part because of their already disadvantaged status in obtaining capital, credit, and training, and in part because of the increased competition from those who have lost formal sector jobs and enter the informal sector. (Osirim: 1998)

As an example one can refer to the Zimbabwean case (Osirim: 1998:277-297). Recent changes in the Zimbabwean state and its economy, presented micro-entrepreneurs (micro-businesses) with new challenges. Declining prices for primary product exports, destabilization in the region caused by the situation in South African and war in countries bordering Zimbabwe in the 1980¡¦s meant that the government could not sustain the growth in unemployment and the expansion of social services it embarked on in the immediate post-independence period. In order to rectify the economic crisis, the government enacted a SAP in 1990 at the behest of the World Bank and the IMF.

The result of this SAP was that many males lost their jobs in the formal sector under adjustment and this had a twofold affect on self-employed females. The state encouraged retrenched male workers to start their own small and micro-enterprises as a means of earning a livelihood. The advantaged position that these males were in as far as access to loans and other resources were, even compounded the problem and resulted in unfair competition with the existing female small and micro-enterprises.

The most adverse effect of the SAP¡¦s on Zimbabwe can be seen in the growing ranks of the poor in that country. In 1991, one year after adjustment, of the 10.3 million residents of Zimbabwe, 6.6 million were estimated to be living in absolute poverty and more than 40,000 state employees lost their job under this plan (Osirim: 1998:282).

The funds made available by the World Bank for these SAP¡¦s are however, subject to certain requirements. One of these includes the liberalization of international trade, which means the decrease or abolishment of protection regulatory requirements like tariffs and quotas.

Many of the recent policy measures taken to remedy the problems of African economies have prescribed market liberalization, which requires resources such as human and physical capital to be allocated by private sector entrepreneurs for tradable goods. Naudé (1998:298-311) discussing policy credibility in South Africa argues that the positive impact of liberalization can be obstructed when investors and entrepreneurs begin to doubt that it can correct economic ills, especially if they do not understand the importance of their own roles in making it work.

Liberalization programs may initially cause increases in unemployment and resource security, as the economy tightens into a more efficient system. Entrepreneurs may interpret this as the failures of liberalization rather than transitory effects that will be corrected and there may be private sector demands to discontinue such programs. These programs may, of course, have the negative effect of creating an over supply of unskilled and to a lesser extent skilled human capital that revert as ¡§forced-entrepreneurs¡¨ economic to non-value-adding subsistence small and micro-enterprises.

The ability of African entrepreneurs to maximise their returns from reforms due to SAP¡¦s can be enhanced, according to Naudé (1998) if they develop their technical managerial, accounting, marketing and sales skills in order to respond more effectively to the new incentives and opportunities.

8. Policy vs Exogenous factors in the performance of SME¡¦s

Evidence from East Asian countries suggest that the SME sector can loom large and important in an economy and that when it does so both the economic growth and development and the income distribution performances can benefit greatly. Berry (2000: 12) says that the biggest question is: to what extent does such impressive success owe itself to exogenous factors like the wealth of entrepreneurial talent, a culture which favours the business characteristics that are friendly to the development of SME¡¦s, a topography conducive to a dense network of small firms, or a history which did not produce a lot of large enterprises.

Although skepticism over Africa¡¦s potential success with SME (entrepreneurship) development should be taken seriously, it should not be overdrawn. As of the early 1970¡¦s Korea, for example, was dominated by large, vertically integrated firms which did relatively little subcontracting and the SME sector was accordingly much less important than in Taiwan or Japan. Since that time however, SME output and employment has increased enormously in Korea. At the same time the level of inequality in the country has diminished. This growth in SME¡¨s was mainly due to:

¡P a rapid increase in the density of subcontracting

¡P an increase in competitive pressures and

¡P public policy efforts to expand the role of SME¡¦s

This experience is relevant to Africa.

9. SME and entrepreneurship development strategy for Africa.

International experience indicates that any comprehensive entrepreneurship / SME development strategy should contain definite objectives and programs. Being a very heterogenous one, the SME sector should not be expected that the same policy package would be optimal across all branches, across African countries at different levels of development, between SME¡¦s which are subcontractors and those which are part of clusters, producers of tradable versus producers of non-tradables, etc. It must also be recognized that in some areas, understanding of what good policy may be remains incomplete for lack of policy experiments and careful analysis. These caveats aside, a number of important conclusions with regard to a development may be drawn.

Vosloo (1992:8-11) concludes that a development strategy should at least contain the following objectives and programs:

¡P Fostering and enable environment for encouragement of entrepreneurship and SME creation and growth.

¡P Mobilizing financial resources by way of appropriate financial assistance programs for SME creation and growth.

¡P Providing appropriate low-cost affordable rental facilities or individually owned premises if they are not provided by commercial developers.

¡P Upgrading and improving the skill and technology levels of SME¡¦s.

¡P Providing appropriately structured, staffed and financial support systems.

Berry (2000:12-13) says that the following policies will assist the most to induce a strong performance of SME¡¦s. These can be considered together with those proposed by Vosloo.

* SME support policies

SME development requires solid support systems. At the National level those in charge of the main levers of policy are often unfamiliar with the varying situations and needs of specific groups of firms, defined by sector or, as in the case of SME¡¦s by size. For informed, effective policy at national level this hurdle must somehow be overcome for example by providing more complete knowledge for the decision makers and including representatives of the SME sector at the policy making table.

* Marketing support

Government¡¦s institutional capability to deliver marketing support is generally weak or may not even exist in certain African countries. Strategies for providing marketing support should include decentralization of export marketing support so as to be able to respond to the enormous diversity of players and market mechanisms across subsectors, as well as the provision of information to firms where to find buyers for themselves, rather than attempting to substitute for efforts by putative exporters.

* Technology upgrading

The key to the continuing success of SME¡¦s especially those which produce tradables, is technology upgrading. The challenge of technological acquisition requires activist strategies at both the firm and collective levels. Collective technical support can be broad-based and can enhance the overall availability of usable information by sponsoring courses on specialized topics; facilitating the used of specialized consultants to a range of firms; and promotion information-sharing among firm.

In the case of specialized consultants support from more developed countries in Africa to the lesser developed countries is advisable, due to knowledge of African culture and business practices, applicable to African conditions and environment.

Collective technical support can promote ¡§high-intensity¡¨ technological learning supplying technical inputs directly to firms.

Broad-based collective support has been most effectively delivered by decentralised institutions, either by industry associations, by independent non-governmental organisations, or by local governments in specialized industrial districts.

* Education and Training

Due to a lack of resources SME¡¦s do not and cannot be expected to supply most of the learning in-house or otherwise. Only a few countries in Africa have good education and training support systems for entrepreneurs and SME¡¦s. Here South Africa can be seen as being a leader on the continent with.

¡P Support from relevant business associations ¡V sometimes umbrella SME associations sometimes industry-specific ones, often local ones;

¡P Support from the banking and other financial institutions where practical oriental support forms the basis.

¡P SME network support programs of which the training programs of the ILO is a good example.

¡P Support from secondary and tertiary education institutions where entrepreneurship courses are taught up to the highest academic and practical level.

* Supportive micro-economic policy

Policies of a micro-economic nature should aim to assist firms in becoming more efficient and competitive. Many simultaneously increase a firm¡¦s performance capability and also increase the likelihood that it will be able to enter a useful subcontracting relationship with a large firm or be a productive member of a cluster large firms are only interested in subcontracting work out to smaller firms at or above a minimum performance level.

* Access to credit

Many SME¡¦s could grow more effficiently and many potential entrepreneurs could enter the business world with better access to credit, but it is less clear what are the limits to the likely performance of a financial system in terms of allocating such credit to the ¡§right¡¨ borrowers. Perhaps the only valid generalisation is that a financial support system will work better when it has better designed rules to guide lending to SME¡¦s and more SME-specific personal expertise, that is, more people who have enough feel for the context of SME¡¦s to be discerning lenders. Although few institutions in the developing world have performed impressively in this regard, the former Small Business Development Corporation now known as Business Partners in South Africa should be seen as an exception and an example of how financial support, supply of venture capital and the development of SME¡¦s in a developing economy should be handled.

More broad policy guidelines are taken up in a study (OECD : 1998) conducted by the OECD in 1998.

10. Conclusion

Taking into consideration what has been discussed in this address some questions remain. The most important is whether the entrepreneurs (entrepreneurial human capital) and SME¡¦s will be the engine of economic development for Africa? Will each category of entrepreneurial enterpise (SME¡¦s micro-enterprises and large firms) have to change or evolve from smaller to larger and from local to global in its methods and strategies? Will the businesses have to move from nonstandard to so-called standard business practice, from low to high levels of capitalization, and, so on, to be the catalysts of development and change? Should the SAP¡¦s from the IMF and World Bank be kept in place, extended or changed? Should a special world-wide support system for the development of human capital on the African continent be set in place? Will distinctly African patterns of entrepreneurship emerge? Will African governments create optimal business climates in the private sector, in particular those governments with formerly socialist backgrounds and centralized public enterprises? Will governments find the necessary educational, business-skills and entrepreneurial training programs, endow financial institutions to become business financiers, protect infant industries, enhance market development both financially and spatially, and modify tariff and trade restrictions? In total will Africa carry through on the road of African Renaissance it has embarked on?

The answers to these and other questions are not yet known and need to be researched in the near future.

While the social organization and economic systems resulting from Africa¡¦s past contribute to its present dilemma, the future will be constructed from the efforts of its entrepreneurs as they work within the evolving systems. The past policies of most African countries have left it with an inadequate stock of human capital. Moreover, as in the East Block countries, the allocation between entrepreneurial human-capital and professional human-capital was skewed in favour of the latter.

If one recognises, as does Naudé (1999:20) that the stock of human capital is growing on average by 9% per annum in Asian countries then one might conclude that the South African economy will fail to converge to the same per capita income currently enjoyed by Asian economies. This statement can also be applied to the rest of the African continent if we acknowledge the fact that South Africa has one of the highest developed economies on this continent.

Furthermore to think that the encouragement of small businesses may stimulate entrepreneurship and that entrepreneurs can maximise their efforts in isolation, may be flawed. A supportive economic milieu, as well as appropriate government policies will play critical roles in their success or failure. Small and micro-businesses on this continent are often ¡§residual¡¨ businesses with a lack of access to credit and financial means whereby risks can be absorbed and managed.

How distinctly African patterns will combine with global ones further remains to be seen. Also as yet unknown is how African countries will cope with the impact of entrepreneurial efforts promulgated by international agencies, foreign governments, and multinational corporations. Economic development and growth will depend on how these countries harness the entrepreneurial drive and energy into a consistently potent force for progress.

Lastly the opening-up of a number of African countries economies might lead to a net loss of jobs since the quality of Africa¡¦s human capital is inadequate to absorb foreign technology rapidly enough to compete successfully against rising imports.

The high impact of HIV-AIDS on Africa¡¦s human capital, with 70% of the World¡¦s HIV/AIDS cases on this continent, will also be devestating for its economic growth and development. In South Africa alone, the United Nations estimates that 17% of GDP (amount to some US $20 billion) could be lost by 2010 due to the HIV/AIDS pandemic. Insights on the complementary between physical capital and human capital, the lack of human capital might be what will constrain the inflow of foreign direct investment into African countries economies in future.

I would like to conclude quoting Schumpeter and Raymond Kao.

Kao (1996:1027) says:

¡§Capitalism facilitates capital accumulation giving ownership to the risk, Communism claims everything belongs to the people, but gives ownership to the state. It is entrepreneurism that stems people¡¦s inner need for creativity and innovativeness for common good and gives ownership to the individual.¡¨

Schumpeter (1934:19) says:

¡§Entrepreneurship and SME development are greatly about this ¡¥substantive freedom¡¦ to engage in acts of creation. These acts may be creative in the sense that they are unprecedented or they may be a synthesis of other¡¦s creative activities into ¡¥new combinations¡¦.¡¨

Klaas Havenga

2001-05-04

Potchefstroom, South Africa

c:\onb\a.klaas\Will entrepreneurship and Small

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