Subsistence Entrepreneurship, Awakening Africa’s Economic Benefits

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Subsistence entrepreneurs run tiny operations that do not grow into larger firms but merely provide an alternative employment opportunity|photo|decroo.belgium.be

The development of Africa as an emerging economy is one of the highlights of globalization but currently, the economy has been rife with turmoil. Despite the abundance of natural resources, poverty levels have risen and there are high levels of corruption, equality, suffocating economic environments, insecurity, and ethnoreligious crisis. The continent is better placed to develop a well-diversified economy but it is at the crossroads of a momentous transition into the diversified economy. However, there are early signs that entrepreneurs are creating positive effects that are awakening to the economic benefits.

Most people imagine the 21st-century entrepreneurs in Africa as a frontier fantasia: the popular imagination of steady macro-economic growth rates and a youthful entrepreneurial population. But the reality is more sordid. In Africa, there are a large number of tiny businesses- “subsistence” and a few very large businesses, “transformational.” For instance, Uganda which is ranked amongst the most entrepreneurial countries in the world has most enterprises driven by necessity rather than an opportunity. Generally, entrepreneurship here is hardly an innovation so much as a survival kit. The vast majority of them are trapped in a “survival and maintenance” cycle.

Read Also: Urban Sprawl and Sustainability, What Gives?

Subsistence entrepreneurs run tiny operations that do not grow into larger firms but merely provide an alternative employment opportunity to the entrepreneur and potentially their family members. Subsistence implies a struggle to survive, not an effort to build a business that thrives. However, these enterprises contribute to the economy in their unique way.

With a continent that sees unemployment ranked as one of the largest scourge, subsistence entrepreneurship has vast potential to offer individuals with employment opportunities. Taking the example of the local vendors “mama mboga” whom a majority of us depend on for daily necessities such as tomatoes- she can provide for her daily needs and sustain her family.

subsistence entrepreneurship has vast potential to offer individuals with employment|photo|cio.co.ke

Contrary to popular belief, subsistence entrepreneurs do not rely heavily on financial support from investors or venture capitalists. Instead, they tend to lie on their own or family savings hence promoting independence amongst the youth which in turn reduces crime rates in a country. Citizens who are independent help stir up the economy.

The big question is how to make them sustainable.  

Smallholders are an important part of the development equation. However, they are not a homogenous group and development policies should not rate them as such. Instead, the development pathways of smallholders consist of dynamic processes that vary according to the constraints they face and the stage of economic transformation. While some smallholders have the potential to undertake profitable commercial activities, other enterprises should be supported. Subsistence business with profit potential is risky in the face of climate change, price shocks, limited financing options and inadequate access to healthy and nutritious food. These entrepreneurs can successfully adapt their livelihood strategies to these challenges but need a supportive policy environment.

Smallholders are an important part of the development equation|photo|sloganreview.mit.edu

Finances play a major role in the growth of any business. To sustainably grow enterprises from subsistence to transformational, there is a need to rely on channels and organizations that effectively foster the selection and financing of these entrepreneurs. These investors support an emerging class of subsistence entrepreneurs to build their businesses. An improvement in the liquidity of public markets can contribute to a more vibrant market of investment and economic growth.  

Subsistence entrepreneurs do not act in isolation on the market scale. Competition from the transformational entrepreneurs easily knocks them out of the market. There is a need to regulate the market policies that will protect them from the competition. For instance, in India, large firms of more than 20 employees are prevented from accessing the retail markets.

A broad spectrum of interventions is fundamental to unlocking the potential of small enterprises and supporting the scale-up of smallholder participation in markets. Reliable financing, strong public sector support and an enabling environment for private sector investments are all required to underpin the transformation from subsistence to successful small enterprises. At the same time, policy reform is required to unlock the latent potential of small entrepreneurs. Expanding access to knowledge, finance, technology, and markets are crucial to improve the business eco-system. Only then, will small be beautiful.

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