4 kinds of capital Africa needs to boost entrepreneurship

Over the past 20 years, Africa has been steadily growing and is expected remain one of the fast growing regions in the near future. Central to this is entrepreneurship and the role of entrepreneurs.

The idea of entrepreneurship proposed here is one where African people play a key role in economic activities. They study and practice entrepreneurship in a focused fashion in order to control their own economic destinies. In this way, entrepreneurship becomes a conscious lifelong programme of mastering capital to improve productivity and quality of life for the largest number of people.

An entrepreneurial organisation is one that has grown revenues, jobs or profits in the past five years by several multiples of GDP growth. These organisations grow large by introducing new products, services and sometimes even undermining existing ones.

Cellphone groups MTN and Vodacom represent this picture in South Africa. On the other hand, fixed line provider Telkom was found to be unresponsive to the growing demand for telecommunications services.

Typical entrepreneurs include Strive Masiyiwa, Aliko Dangote, Kaizer Motaung, the Kunene Brothers, Richard Maponya and many others running multi-million rand enterprises across the continent.

Harnessing different forms of capital

The entrepreneur then is the person or team that masters the art of forming, mobilising and deploying capital for the best return over time. Capital is simply anything that can be used to produce goods or services. African entrepreneurs have yet to get a proper grip of what capital is.

• Finance capital: serious economic development starts with financial savings rather than consumption. The Chinese have been saving 30% of their disposable income in their personal capacities and as families since 1978. As a nation their savings rate is around 50%. This saving’s rate has spurred Chinese economic growth. Similarly, in Africa many entrepreneurs, including Aliko Dangote, relied on family savings to start their own businesses. Families, community saving schemes and burial societies need to find meaningful ways to create a pool of capital to invest in family businesses and emerging entrepreneurs. This requires the creation of robust capital raising structures beyond the traditional avenues.
• Human capital: this is the totality of useful skills that people have. This includes entrepreneurship, leadership, managerial and engineering skills. Firms that grow and innovate are typically ones where young people are given a chance to innovate and to lead. And human capital that elevates the overall productivity and sophistication of a nation is typically inter-disciplinary. It encompasses, for example, the arts, sports and technology. The Nigerian film industry, Nollywood, is a good example. It represents the formation of human capital which promises to be the torch bearer of African visual arts in the next 20 years.
• Intellectual capital refers to ideas that have been properly formalised, documented, and in some cases legally protected and packaged for commercial exploitation. Entrepreneurs need to be aware that every business has intellectual capital. This includes a range of unique methods of operation such as marketing, branding and manufacturing. For example, India has exploited intellectual capital to gain world leadership in pharmaceutical generics. African businesses and entrepreneurs must intentionally seek to be owners of intellectual capital.
• Social capital: successful entrepreneurs are masters of human relations and building a network of productive people who are actively interested in making each other successful. The pillar of human capital is reciprocity where members of a network are prepared to invest in each other’s success. Reciprocity needs to be formalised for entrepreneurial purposes. For a start, members of a given family and community must openly realise the necessity for social capital and organise themselves for ongoing mutual support. Support that produces top performance cannot be haphazard but must be systematic and sustained. This sustained systematic collaboration must have a mutually reinforcing relationship between the entrepreneur, family and community.
• Physical capital: the story goes that it is cheaper to freight cargo from Atlanta to Mombasa than to get the same cargo from Mombasa to Kampala. What it takes to transport cargo is physical capital including trucks, trains and cargo planes. It is the task of entrepreneurs to ensure that physical capital is created, mobilised and deployed in all its forms. This starts at the most basic of level of ensuring that we are not dressed up in expensive clothes when we have not setup proper internet connection in our homes.

Collaboration and professionalism are two key ingredients for building an entrepreneurial culture and base that can sustain decent living standards for Africans.

This article is published in collaboration with The Conversation. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Sandile Swana is a lecturer at Wits Business School, University of the Witwatersrand.

Image: A woman is seen in Kenya’s highlands region. REUTERS/Noor Khamis.