How entrepreneurship can drive structural economic change

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This article first appeared in my weekly column with the Business Daily on January 17, 2016.

Entrepreneurship is increasingly being perceived as Africa’s silver bullet to ending poverty. All you need to do is start a business, the commentary promises, and with hard work, you’ll be rich. Such simplistic thinking is intellectually lazy because in order for entrepreneurship to make serious dents in Africa’s poverty, there has to be strategic direction and oversight. Directed and deliberate action to promote entrepreneurship can drive structural economic transformation, particularly industrialisation. Industrialisation is important for several reasons such as creating jobs, building disposable income and moving towards an export-oriented focus through which forex can be accrued so that millions are dragged out of poverty. So what components need to be in place to make this work?

 (source: https://anzetsewere.files.wordpress.com/2016/01/711ab-industrial.jpg)

The first is direction from government; and here there is good news for Kenya. Late last year government developed the Industrial Transformation Programme which charts out a strategy to build manufacturing and industry in sub-sectors such as agro and fish processing, textiles and apparel and leather. It seems as though this programme will be coordinated with the Kenya Industrialisation Policy (2010) which acknowledges the need to build supporting features for industrialisation such as transport infrastructure, energy, ICT and, water and sewerage. Bear in mind that there are critics of Industrial Policy and many African governments have been advised and in some cases convinced not to pursue aggressive industrialisation policies in the name of deregulation rooted in ‘small government’. African leaders have been given numerous examples of where Industrial Policy failed such as those pursued by some Latin American countries in the 1990s and even in Africa. But the truth is that in some countries such policies have worked in areas such as East Asia and even in the very regions whose governments are anti- Industrial Policy when it comes to Africa.

Africa should stay focused and push for robust Industrial policy because as the Foreign Policy magazine aptly states, failures in Industrial Policy say more about how to do industrial policy- not whether it should be done. As a result, Foreign Policy continues, the Kenyan government and others serious about industrialisation may well have renegotiate, and re-design previous international trade commitments, and refuse to sign new ones that put them at a disadvantage. The creation and pursuit of Industrial Policy, particularly in the context of regional economic blocs can provide a foundation on which enterprises can be developed or supported to start in a manner that drives industrialisation forward.

The second element required to allow entrepreneurship to drive industrial change is strategic financing. The Industrial Transformation Programme already has provision for an Industrial Development Fund but further steps ought to be taken. Government can do what is possible with regards to financing industry-focused enterprises but the private financial sector has to play a role as well whether these are Banks, Equity Funds, Venture Capital Funds, Angel Investors or Impact Investors. Specific, targeted and coordinated financing ought to be made available to credible industry-focused businesses. Through such coordinated, sector-specific lending buttressed by proactive Industrial Policy, a gradual transformation can occur in terms of the composition of businesses that make up Kenya’s, and indeed Africa’s, economy.

(source: http://amoreec.com.sg/wp-content/uploads/2014/11/Money-Sign.png)

The final element and perhaps the most important, is robust and uncompromising anti-corruption oversight; without this the aforementioned will simply not work. If corruption sullies the strategy detailed here, businesses will be selected for financing in the spirit of cronyism and building favour banks rather than in the spirit of culling out weak enterprises such that the best rise to the top. Corruption will also make analysis impossible and analysts will be unable to determine elements of the strategy that are working and those that ought be modified or dropped altogether.

Anzetse Were is a development economist; anzetsew@gmail.com

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