By Wim Naudé, Professor in Business and Entrepreneurship in Emerging Markets, Maastricht University, Dean of the Maastricht School of Management, The Netherlands, and Research Fellow at the IZA Institute for Labor Economics, Bonn, Germany
Africa has failed to industrialise. At the same time, millions of young people are seeking jobs. Put one-and-one together and the answer seems to be that if these labour market entrants become entrepreneurs in industry then they can in one stroke create jobs and help Africa industrialise. Yet, optimising the nexus between entrepreneurship and industrialisation requires overcoming some vexing policy biases. These can be categorised as biases of over-estimation and biases of under-estimation.
First, industrialisation’s job-creation potential is often over-estimated. The world is in a Fourth Industrial Revolution (4IR) driven by technologies such as the Internet of Things, automation, additive manufacturing and big data analytics (see Naudé, 2017). These technologies are causing the loss of low-skilled routine jobs, of which Africa has a disproportionate share. It’s estimated that up to 66% of all jobs in developing countries are at risk. Relatively poor African countries such as Ethiopia are at a particular risk of having around 44% of current jobs susceptible to automation. The 4IR is furthermore leading to a ‘re-shoring’ of manufacturing back to advanced economies. This is to the detriment of low-wage labor in African and other developing countries. As Culey (2012) points out: How important is low-cost labor when you don’t actually need labor?
Second, the dangers of entrepreneurship are under-estimated. Most businesses are small and micro-enterprises that do not create many jobs, that do not grow and that fail within a few years (Nagler and Naudé, 2017). Although problematic, this is perhaps the least of the dangers (Naudé, 2011). More of a concern is the danger of government capture and destructive entrepreneurship such as looting, people smuggling, poaching and outright war (Brück et al., 2013). Consider two recent examples (unfortunately there are many more). First, a study on the relationship between African leaders’ birthplaces and the destination of Chinese-funded industrial projects found that when leaders hold power, their birth regions receive substantially more funding from China than other subnational regions (Dreher et al, 2016: p.1). Second, state capture by entrepreneurs has contributed to the destruction of the textile industry in northern Nigeria. Millions of garments with the Made in Nigeria label are illegally smuggled across the Niger border, with the complicity of local politicians/entrepreneurs (Burgis, 2016). The garments are in fact not made in Nigeria.
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Unlock the potential of African entrepreneurs for accelerating Africa’s industrial transformation, says the African Economic Outlook 2017
AfricanEconomicOutlook.org offers comprehensive and comparable data and analysis of 54 African economies.