Are we doing enough to support Africa’s rural entrepreneurs?

In recent years there has been a growing interest in small rural business development and entrepreneurship as conduits for accelerating job opportunities – for the youth and for poverty reduction. This holds particularly in Africa, where the youth bulge is challenging policymakers to generate jobs for an additional 170 million people who are expected to enter the labor force between 2010 and 2020 (Fox at al., 2013). Among them, 38 percent are projected to work in household enterprises, amounting to around 65 million people. Studies show that jobs generated in the sectors where the poor work and places where the poor live, i.e. in the rural areas, are more effective at lifting them out of poverty.

But is this justified? If only small numbers of rural inhabitants are entrepreneurs, if they predominantly engage in low productive activities, or if they do not make significant contributions to household income, we need to be more skeptical with regard to the role of entrepreneurship. Or at least, we must more critically reconsider whether current supporting policies are appropriate or supportive enough. On a superficial level rural Africa appears to be quite entrepreneurial. Villages throughout Africa’s vast rural areas are teeming with entrepreneurs, young and old alike, doing business: selling wares, offering services, and transporting people and goods. Shops are often located in family homes, market squares and lining key roads, providing the social places for community interactions, family gatherings and dispute settlement. If we dare to see these activities as “entrepreneurial”, at least in the sense of self-employment, then village life in rural Africa is certainly defined by the nature and dynamics of these small businesses.

However, as with many perceived wisdoms about African rural livelihoods, what do we really know? The data collected under the Living Standard Measurement Study – Integrated Surveys on Agriculture (LSMS-ISA) initiative and analyzed under the broader Agriculture in Africa – Telling Facts from Myths project provides us with an opportunity to delve deeper into the issue. Together the LSMS-ISA surveys cover 6 countries representing 40 percent of Sub-Saharan Africa’s population (Ethiopia, Malawi, Nigeria, Niger, Uganda, and Tanzania). Using this data, we find the following.

First, non-farm entrepreneurship activities are indeed ubiquitous in the rural areas of the countries studied. Almost 42 percent of the 24,551 rural households surveyed operate such an enterprise. The country shares vary widely, from a relatively low share of 17 percent in rural Malawi to almost 62 percent in rural Niger. Across all countries, households operate on average 1.36 enterprises. Among the enterprises operated, most enterprises are engaged in non-agricultural and agribusiness, trade and sales.

Second, income deriving from self-employment contributes between 9 percent in Malawi to 36 percent in Niger to total household income. It is lower compared to urban areas, where it contributes between 22 percent in Malawi and 48 percent in Niger. While agriculture continues to dominate rural areas, the share does not exceed 60 percent in any of the countries. Self-employment, agricultural wages and transfers also play an important role.
Non-farm household rural enterprises contribute significantly to rural household income

Source: Authors’ calculations based on RIGA data (weighted shares).

Third, the vast majority of non-farm enterprises in the LSMS-ISA surveys are small household enterprises, operated from the household residence or the local market. Over 80 percent do not employ non-household workers. Less than 3 percent employ five or more non-household workers. Also, more than half of them are not operated throughout the year, suggesting that seasonality in agriculture also affects self-employment. In general, these characteristics are more suggestive of survival than vibrancy. So, what about their productivity?

Fourth, and providing some antidote to this rather pessimistic outlook so far, household enterprises display wide heterogeneity in terms of their productivity, with many performing rather poorly, but some also showing high returns. Overall, urban enterprises tend be more productive than rural ones, as are male headed ones, with somewhat older operators – not revealing any real surprises. Enterprises are also more productive if they are located closer to urban centers and when activities require more skills and capital, such as the running of a restaurant or a transport undertaking. Overall, the results show that prosperous self-employment is possible, but clearly not (yet) widespread.

We conclude that the non-farm enterprise sector is not equally important across African countries and that their contribution to total household income is proportionately lower in rural than in urban areas, as expected. Great heterogeneity in the non-farm enterprise sector may also reflect different motivations for enterprise operation, as well as different country contexts and economic geographies. Although governments and development agencies support rural entrepreneurship for a number of reasons, more action is needed if the sector is to make a significant contribution to rural development. The new LSMS-ISA panel data that recently became available, also provides important opportunities to further uncover the driving forces behind Africa’s rural household enterprises.

References:
Fox, L., Haines, C., Huerta Muñoz J. and A. Thomas (2013). Africa’s Got Work to Do: Employment Prospects in the New Century. IMF Working Paper No. 13/201.

Nagler, P. and W. Naudé (2014). Non-Farm Enterprises in Rural Africa. New Empirical Evidence. World Bank Policy Research Working Paper No. 7066.

This is the third post in a series of blogs dissecting our commonly held beliefs about Africa’s agriculture and its farmers. They draw on the findings of the Agriculture in Africa – Telling Facts from Myths partnership project led by the Chief Economist Office of the Africa Region of the World Bank.

This article was first published by The World Bank’s Africa Can End Poverty blog. Publication does not imply endorsement of views by the World Economic Forum.

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Authors: Paula Nagler is Assistant Professor in Social Protection and Entrepreneurship at the Maastricht School of Management and PhD Fellow at UNU-MERIT and Maastricht University. Wim Naudé is Dean of the Maastricht School of Management, Chair in Business and Entrepreneurship in Emerging Markets at Maastricht University in The Netherlands, and Research Fellow of IZA in Bonn.

Image: A vendor hands change back to a customer at her market stall with price tags marked in Cuban pesos in Havana October 23, 2013. REUTERS/Desmond Boylan.