If entrepreneurship is truly the pathway to prosperity, and if Africa is bustling with entrepreneurs, then why is the continent still devastatingly poor? I am always amazed whenever I read an article that highlights the entrepreneurial prowess of Africans as an asset. Yes, Africans are entrepreneurial but if their entrepreneurialism were as much of an asset as many writers suggest, then Africa – indeed, Africans – should no longer be poor. In April, for instance, The Economist published a Special Report on Business in Africa and highlighted Kinshasa’s Marche de la Liberte, a wholesale market, as evidence of entrepreneurialism, noting that “there is clearly money flowing.” “…Stalls selling mobile phones. You can buy anything here, from fried fish to Premier League football shirts. People flash cash as they negotiate, and everyone is haggling,” the article explained. However, while that sort of activity is more productive than the war, poverty, and devastation that Africa is known for, it will not lead to the truly transformative development that Africa needs.
All entrepreneurship is good; but some are better than others.
The art of buying something at a fixed or established price and selling it at an uncertain, but hopefully higher, price is not new. For thousands of years, merchants have traded in goods and services in the hopes of making a profit. It is that sort of entrepreneurship that The Economist writes about when they refer to Africa. We call it Survival Entrepreneurship, and it is not specific to Africa. It existed in Europe and the United States hundreds of years ago. It was necessary for survival.
But something began to happen in the 1800s as entrepreneurs started developing disruptive innovations that made historically complicated and expensive products simpler and more affordable so that many people would have access to them. This kind of entrepreneurship created tremendous wealth for the entrepreneurs but also made society significantly more productive. We call this Disruptive Entrepreneurship.
An 1800 Disruptive Entrepreneur, Eli Whitney
In 1793, American innovator, Eli Whitney, invented the cotton gin. Before the invention, the process of separating cotton seeds from cotton fibers was extremely laborious and required a great deal of skill. The cotton gin allowed for the simpler separation of cotton fiber from their seeds, revolutionizing the cotton industry in the United States.
In 1790, for instance, America produced approximately 1.5 million pounds of cotton and it was fairly expensive to obtain. By 1810, America was producing 85 million pounds of cotton, growing at a compound annual growth rate of 22 percent a year. This innovation caused the price of cotton to fall from 38 shillings per pound in 1786 to less than 10 shillings per pound by 1800. During the first half of the 19th century, cotton accounted for more than 50 percent of all American exports. This even created an underwear revolution that had a huge impact on public health in the United States. This kind of entrepreneurship has the potential to move people from survival to prosperity.
So, Africa does not simply need entrepreneurs; it has many of those. The continent needs disruptive entrepreneurs. These entrepreneurs are the engines of economic growth that propelled historically poor countries to “rich country status” today. The innovations that these entrepreneurs introduced served as the catalyst that spurred governments to act in the best interest of the people. Without these innovations, there would have been no incentive for the governments to create business friendly environments which further fostered the creation of more disruptive innovations. With enough disruptive entrepreneurs, Africa can rise.
Disruptive Entrepreneurship is possible in Africa
The widely known mobile money platform in Kenya, M-PESA, is a textbook case of disruptive entrepreneurship. In 2007, the year M-PESA was introduced, only 19 percent of Kenya’s 38 million people had access to any sort of financial services including bank accounts. There were just 1,000 banks and barely 20 percent of the population had access to electricity. Major development indicators such as road networks, education, health, etc. were equally low. But there was a booming mobile phone market. It was on the back of the speedy proliferation of mobile phones that Safaricom, a telecommunications company, built M-PESA, enabling both the rich and the poor to save money in and send money through their mobile phones. Soon after, a revolution, similar to that of the cotton gin, happened. In a few short years, M-PESA had 19 million people on its platform; more than 80,000 agents; and today transacts more than $1 billion monthly. Disruptive entrepreneurs bypass the conventional path and create new value networks that have the potential to pull in millions of people from non-consumption into consumption.
The chicken and the egg
So, which should come first for Africa, the chicken or the egg? Should the chicken, the business friendly environments and institutions that support investments, come first? Or should entrepreneurs develop innovations in the difficult environments they find themselves, after which, they hope, business friendly institutions will begin to emerge? Here is what we know about Africa: we have been waiting for governments to create institutions that support a thriving business environment for over five decades. It is safe to assume that entrepreneurs must create their own luck. Just like many rich countries did hundreds of years ago, African entrepreneurs must force the government’s hand by triggering an entrepreneurial revolution with disruptive innovation at its core.
African investors and entrepreneurs must look at the millions of Africans who wake up every day and struggle to get simple things done, and create innovations that improve their lives. The impact of such innovations should resemble that of Whitney’s and Safaricom’s. They must not simply buy low and sell high. They must do what is rarely done in Africa. They must create. They must disrupt.
While it would be a huge plus to have good institutions that promote economic development, today we do not. But, thankfully, a careful observation of history shows that disruptive innovations typically precede good institutions. Good institutions do not simply fall from the sky. Just like chickens, they develop over time through arduous effort. When policy makers see that making life easier for the innovators also enriches themselves and the State, they respond accordingly. The question then, for Africa, is: when will it graduate from survival entrepreneurship to disruptive entrepreneurship?
About the author:
Efosa Ojomo graduated from Harvard Business School in 2015 and is currently a senior research fellow there at the Forum for Growth and Innovation. He is working with Professors Clay Christensen and Derek Van Bever on applying the theories and principles of disruptive innovation in emerging markets in order to engender growth and prosperity.