Sub-Saharan Africa most difficult region to launch a startup

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Sub-Saharan Africa performs worst globally in terms of the level of difficulty in launching a startup, according to a study by the Global Entrepreneurship Development Institute (GEDI).

The Global Entrepreneurship Index (GEI) 2015, which measures the entrepreneurial ecosystems in 130 countries using the criteria Attitudes, Ability and Activities, said entrepreneurship is generally on the rise globally but there is much room for growth.

It measured global entrepreneurial capacity at 52 per cent, with the United States (US) topping the list, followed by Canada, Australia, the United Kingdom (UK), Sweden, Denmark, Iceland, Taiwan, Switzerland and Singapore.

Sub-Saharan Africa, however, was by far the lowest ranked region globally, with 22 out of the 29 countries rated in the bottom 25 per cent of nations globally in terms of entrepreneurship.

South Africa performed best, coming in 52nd with an average score of 40, followed by Botswana (66th), Namibia (69th), Nigeria (84th) and Kenya (86th).

Five African countries appeared in the bottom seven globally: Burundi (124th), Ethiopia (125th), Chad (126th), Malawi (128th) and Uganda (129th).

“Even with this low level of development, there are important differences between the sub-Saharan countries’ Attitudes, Ability, and Activities,” the report said

“Generally speaking, the region’s most pressing bottlenecks are found in Attitudes, where the sub-index score is a little more than half of its relative strength, Ability. The Aspirations level is close to the Ability level for this region.”

The report said Africa’s most serious handicap was the fact its gross enrollment in tertiary education, which the GEDI considers to be the institutional component of the startup skills pillar, is the lowest of all regions measured.

“Notable weaknesses are also found in Africa in the Attitudes measure; the normalised values of Risk Acceptance, Networking, Cultural Support, and Opportunity Perception are all below 0.20, whereas the values of all other pillars are above that threshold,” it said. “This points to a general African weakness in Attitudes; the continent’s relative strength is primarily in Ability.”

It said entrepreneurship in Africa was generally held back by institutional factors, which it said was a pattern typical in developing countries.

“At 0.3, the mean score for institutional factors in Africa is the lowest of all regions. The next lowest is in South and Central America, at 0.51. Africa scores better on individual-level factors, with an overall mean score on a par with other regions. Thus, to exploit their entrepreneurial potential more effectively, African countries need to improve their institutional conditions for entrepreneurship.”

The report said South Africa stood apart from its African peers in terms of its Ability variables, such as Competition and Opportunity Startup, and many of its Aspiration variables, as a result of better institutional conditions.

However, it found that in terms of skills, South Africa was on a par with Nigeria, which came in 4th, and Uganda, which came in 129th.

“Nigeria stands out in terms of Opportunity Perception and Networking, but it is held back by poor aspirations,” the report said. “Nigeria lags behind South Africa and even Uganda in terms of Risk Acceptance, which reflects a high level of Business Risk due to the country’s significant corruption and poor contractual enforcement.”

In terms of the reasoning for Uganda’s lowly ranking, the report said this “reflects its recent internal instability”.

“Uganda has considerable work to do to improve its institutions and introduce internal stability, both of which currently hold back its entrepreneurial potential,” it said.

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Passionate about the vibrant tech startups scene in Africa, Tom can usually be found sniffing out the continent's most exciting new companies and entrepreneurs, funding rounds and any other developments within the growing ecosystem.

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