The prevailing narrative in development economics has long favored entrepreneurship as a cornerstone for economic growth, particularly in emerging markets. In recent years, this viewpoint has led to widespread adoption of the entrepreneurial ecosystems (EE) framework as a blueprint for fostering development in regions like Africa. The EE approach predicates that fostering a supportive environment—encompassing infrastructure, access to capital, regulatory frameworks, and skilled human capital—will ignite business creation, innovation, and ultimately, sustainable economic prosperity. Yet a recent study by Professor Alex Coad and colleagues challenges this orthodoxy, positing that Africa’s high rates of entrepreneurship may not only fail to catalyze growth but could actually obscure more effective economic strategies.
Sub-Saharan Africa exhibits the highest rates of self-employment globally, a phenomenon often broadly equated with entrepreneurship growth. But this prevalence of entrepreneurship largely reflects necessity-driven self-employment rather than opportunity-driven innovation. Individuals often resort to informal, small-scale businesses simply as a survival mechanism in the face of inadequate formal employment prospects and underdeveloped industrial structures. This phenomenon yields a paradox: Africa simultaneously boasts robust entrepreneurship metrics while lagging at the bottom of global economic development rankings, highlighting a disconnect between entrepreneurial intensity and meaningful growth.
The research spearheaded by Professor Coad at Waseda Business School extensively reviewed comparative development frameworks, juxtaposing the traditional EE model with the historical economic trajectories of East Asian countries and the theoretical insights derived from Schumpeterian growth theory. The East Asian developmental miracle—exemplified by South Korea, Taiwan, Singapore, and Malaysia—offers a counterpoint to EE advocates. These nations achieved rapid industrialization and technological advancement primarily by nurturing large firms with substantive government support, promoting exports of sophisticated manufactured goods, and attracting foreign direct investment (FDI) alongside multinational corporations (MNCs). In contrast, the EE framework tends to emphasize small enterprises and self-employment, often accompanied by a laissez-faire stance toward government intervention and technology specialization.
A critical technical insight from this comparative analysis is the differential emphasis on firm size and network effects. Large firms in East Asia serve as hubs for technology transfer, workforce skill development, and supply chain integration, creating positive externalities that small and informal firms rarely achieve. This contrasts sharply with Africa’s current economic composition, which is heavily skewed towards micro and informal businesses incapable of scaling, producing complex goods, or sustaining productivity gains critical to macroeconomic growth.
The study further draws upon Schumpeterian growth theory to frame Africa’s predicament through the lens of technological proximity to the global frontier. According to this framework, countries closer to the frontier must focus on innovation-driven growth, investing in research and development to maintain competitiveness. Conversely, nations distant from the frontier—like much of sub-Saharan Africa—derive more immediate benefits from technology adoption, importation, and adaptation. This divergence implies that policy prescriptions emphasizing high-risk innovation entrepreneurship may misallocate scarce resources in African contexts, where incremental improvements and capital investments in established industries promise higher returns.
Empirical evidence underlines this theoretical perspective. Data indicates that sub-Saharan Africa receives less than 1% of global venture capital, underscoring a lack of investment in high-growth startups. Moreover, the continent exhibits very few medium to large-scale enterprises, an essential structural component for job creation, export capability, and sustainable economic complexity. High rates of self-employment correlate negatively with GDP per capita, suggesting that the proliferation of small-scale entrepreneurial activities may largely represent subsistence ventures with limited growth potential.
In addressing the implications of these findings, Professor Coad emphasizes a crucial policy reorientation. The African continent’s development bottleneck is not an inadequacy of entrepreneurial activity but the scarcity of large-scale firms capable of driving systemic productivity improvements. Rather than propelling entrepreneurship as a universal remedy, African policymakers should direct efforts toward fostering an environment conducive to the emergence and growth of sizable firms. This includes infrastructure development, regulatory reforms, targeted industrial policies, and mechanisms to attract and integrate FDI and multinational corporations, drawing selectively from the East Asian experience but tailored to Africa’s unique institutional and socio-economic context.
The controversy illuminated by this research challenges a widely held assumption in development programs: that entrepreneurship is an unequivocal engine of economic prosperity. Instead, the data-driven critique suggests that overemphasis on nurturing large quantities of small enterprises risks perpetuating cycles of low productivity and informality. Policy prescriptions must recalibrate towards quality over quantity, focusing on structural transformations that enhance firm scale, technological depth, and integration into global value chains.
Furthermore, the study highlights the need for nuanced conceptualizations of entrepreneurship within African development discourse. Distinguishing between necessity and opportunity entrepreneurship is pivotal, as the former often entails businesses constrained by limited resources and markets, while the latter is associated with innovation-led growth. Current high levels of necessity entrepreneurship can mask underlying socioeconomic deficiencies, diluting policy effectiveness when entrepreneurship is indiscriminately promoted as a catch-all solution.
This research also invites reflection on the role of government in shaping industrial landscapes. The entrepreneurial ecosystems model often advocates minimal government interference, assuming that market forces will naturally foster enterprise development. However, the success stories from East Asia underline the benefits of proactive, strategic state intervention. By facilitating capital access, championing export-oriented industries, and creating technology adoption incentives, governments can orchestrate the growth of large firms that generate spillover effects throughout the economy.
Moreover, investment-led growth strategies tailored to Africa’s specific conditions appear increasingly relevant. Given Africa’s distance from the technological frontier, attracting investment in proven technologies and industries may accelerate developmental progress more effectively than seeking to spur indigenous innovation prematurely. Policies that foster such investments, including improving ease of doing business, protecting property rights, and ensuring political stability, could provide the structural foundation for long-term growth.
In conclusion, the study by Coad and colleagues advocates a paradigm shift away from the prevailing entrepreneurial ecosystem focus towards an economic development strategy that prioritizes the growth of large-scale firms, capital investment, and structural transformation in Africa. While entrepreneurship remains vital, its role must be reconsidered within the context of persistent informality, scale limitations, and technological capacity gaps prevalent across the continent. For policymakers, this implies designing comprehensive, context-sensitive approaches that transcend simplistic entrepreneurship promotion and instead target the systemic factors constraining sustainable African economic growth.
Subject of Research: Literature review focusing on economic development frameworks and entrepreneurship relevance to Africa.
Article Title: Does Africa need entrepreneurial ecosystems thinking?
News Publication Date: 27-May-2025
Web References: https://doi.org/10.1007/s10961-025-10213-x
References:
Coad, A., Domnick, C., Santoleri, P., & Srhoj, S. (2025). Does Africa need entrepreneurial ecosystems thinking? The Journal of Technology Transfer. https://doi.org/10.1007/s10961-025-10213-x
Image Credits: Professor Alex Coad from Waseda Business School, Japan
Keywords: Economic development, Developmental economics, Macroeconomics, Business, Entrepreneurship, Technology, Africa, International relations, International trade, Industrial sectors, Economic growth, Gross domestic product
