Current Image: Update Image: Leave empty to keep current image

Title:

Body: On a cold afternoon in Zomba South-eastern Malawi some years ago, I sat across from a group of young entrepreneurs whose businesses I had helped launch. Their energy was contagious. One had started a poultry enterprise with 200 birds. Another had opened a small digital printing shop. A third was experimenting with a mobile money booth near a busy trading center, to be specific Airtel money. At the time, I was leading an organization that encouraged young people to become entrepreneurs - creating jobs, generating value, and contributing to prosperity. The idea was simple: if young people could start businesses, they would not only escape unemployment but also create employment for others. In graduations entrepreneurship became a hot topic. Presidents, Vice Chancellors and special guests kept on advising graduands. “Don’t be job seekers but go and be job creators, start a business and create jobs for yourselves and others.” For a while, the model appeared to work. Many of the young people we supported registered businesses, opened small shops, and launched services that addressed real needs in their communities. Some hired two or three employees. Others began expanding into nearby markets. But years later, when I looked back, the story had changed. Several of those businesses had collapsed. A number of the entrepreneurs had abandoned their ventures entirely and taken salaried jobs. Others were surviving but barely operating more as self-employment than scalable enterprises. Of course a few of my colleagues have their entrepreneurial ventures and they still stand up to date. My friend Samson Fiadoh who created an Accounting software while at the Polytechnic (Easy books solutions) grew and maintained his business and today is one of Malawi’s best in terms of software development. My other friend Admore Chiumia’s Clean energy business has continued to grow up to date, employing scores of graduates as a result. But these are just isolated cases, and this raised an uncomfortable question that we rarely confront: Is entrepreneurship truly the solution to the economic challenges of the Global South or have we oversold it? THE RISE OF THE ENTREPRENEURSHIP NARRATIVE Over the past two decades, entrepreneurship has become the dominant development narrative across much of Africa, Asia, and Latin America. Governments promote “youth entrepreneurship programs,” donors fund startup incubators, and development agencies encourage small business creation as a path out of poverty. The logic is attractive, many countries in the Global South face severe labor market constraints including rapid population growth, limited industrialization, high youth unemployment and weak formal job creation. In such an environment, entrepreneurship is often presented as the alternative engine of economic opportunity. But this narrative overlooks an important economic distinction: not all entrepreneurship is equal. SURVIVAL ENTREPRENEURSHIP vs. TRANSFORMATIONAL ENTREPRENEURSHIP My fellow Economists often distinguish between two types of entrepreneurship and most entrepreneurship in the Global South falls into the first category. Survival entrepreneurs start businesses because they lack better options. These ventures are typically small-scale, low-productivity activities such as small retail kiosks, roadside food stalls, motorcycle taxi services and small-scale trading. They serve an important livelihood function, but they rarely generate large productivity gains or sustained job creation. In contrast, transformational entrepreneurship more common in advanced economies involves firms that innovate, scale, and create significant employment. The difference between the two is not ambition. The difference is economic structure. THE STRUCTURAL CONSTRAINTS ENTREPRENEURS FACE Many young entrepreneurs in developing economies operate in environments where the fundamentals of business growth are weak. Several structural barriers persist. 1. Limited access to Capital: Access to affordable finance remains one of the biggest obstacles. Commercial banks often consider startups too risky. Interest rates in many African countries can exceed 25–30 percent annually, making borrowing prohibitive. As a result, entrepreneurs rely heavily on personal savings or informal lending, which constrains their ability to scale. 2. Small and fragmented Markets: Many businesses operate in small domestic markets with limited purchasing power. A young entrepreneur selling products in a low-income community may face demand constraints that no amount of effort can overcome. Simply put, the market itself is poor. 3. Weak infrastructure: Entrepreneurs in many developing economies face daily operational challenges including unreliable electricity, poor transport networks, limited internet access and costly logistics. These factors increase operating costs and reduce competitiveness. 4. Policy and Regulatory uncertainty: Unpredictable regulations, bureaucratic hurdles, and informal payments often create additional barriers to business growth. Small firms, in particular, lack the political and financial leverage to navigate such systems effectively. WHY MANY SMALL BUSINESSES FAIL? Research across Africa and other developing regions consistently shows that a large percentage of small businesses fail within the first five years. This is not primarily due to lack of effort or creativity. In fact, many entrepreneurs demonstrate extraordinary resilience. The more fundamental issue is productivity. When too many small firms compete in saturated low-productivity sectors such as retail trade or petty services profit margins shrink dramatically. Businesses survive, but few grow. This is why many young entrepreneurs eventually move into formal employment when the opportunity arises. Employment, even if modest, often provides more stability than a fragile small business. THE MYTH OF ENTREPRENEURSHIP AS A UNIVERSAL SOLUTION The development discourse sometimes treats entrepreneurship as a universal remedy for unemployment. But historically, no country has achieved large-scale prosperity primarily through small-scale entrepreneurship alone. Economic transformation has almost always been driven by structural change, including industrialization, productivity growth in agriculture, expansion of manufacturing, development of large and medium-sized firms and integration into global markets. Entrepreneurship plays a role but within a broader economic ecosystem. WHAT ACTUALLY DRIVES PROSPERITY? Economic history provides a consistent lesson. Countries that have successfully reduced poverty and created mass employment such as South Korea, Vietnam, and China did not rely primarily on micro-enterprises. Instead, they focused on human capital development, export led economic strategies, infrastructure development, and stable macroeconomic environments. Entrepreneurship flourished within those systems, but it was not the starting point. A MORE REALISTIC ROLE FOR ENTREPRENEURSHIP None of the above means entrepreneurship is unimportant. On the contrary, entrepreneurs play several critical roles in developing economies. They are identifying new market opportunities, introducing innovation, creating local employment, providing essential services where formal systems are weak. However, expecting entrepreneurship alone to solve structural unemployment is unrealistic. Entrepreneurship works best when supported by strong economic foundations. RETHINKING THE DEVELOPMENT NARRATIVE If policymakers in the Global South want entrepreneurship to drive meaningful transformation, the focus should shift from simply encouraging people to start businesses toward building environments where businesses can grow. This means investing in reliable infrastructure, access to patient capital, skills development and technical education, export competitiveness and supportive regulatory systems. It also means recognizing that job creation at scale often comes from growing firms, not just new firms. Looking back at the young entrepreneurs I once worked with, I no longer see their journeys as failures. Their experiences reveal something deeper about the nature of development. Entrepreneurship alone cannot carry the weight of structural economic transformation. But within a well-functioning economy, entrepreneurship can flourish and become a powerful engine of economic growth. The real question, therefore, is not whether entrepreneurship is the solution. The real question is what kind of economic system allows entrepreneurship to succeed? Until that system exists, many young entrepreneurs across the Global South will continue doing what those I once mentored eventually did (trying their best to build businesses in environments that make success far harder than it should be.)

Author:

Published At: