A third of the incubators-accelerators and 80% of all Investment in Africa is located in just four African countries. This is according to a recent report from the African Development Bank, AfDB. The report took into cognizance FDI generated between 2011-2020 by these countries and highlights how this factor affects the growth of entrepreneurship in Africa.

According to the report, these four countries are; Egypt which attracted about $56.2 billion worth of FDI during the period under view. Nigeria followed in the second position with about $45.1 billion while South Africa with about $41.3 billion in the third position for the same period. Although Kenya does not rank among the top 10 economies in Africa but made it to the fray as Africa’s hub for innovative startups.

The report titled, ‘Entrepreneurship and Free Trade Volume II – Towards a New Narrative of Building Resilience’, published by the Africa Development Bank  (AfDB) also noted that Egypt, Nigeria, and South Africa ranked as the top three countries on the continent in terms of attracting FDI over the past decade. The countries also tend to dominate the African portfolio investment market.

According to AfDB, FDI is considered key to the growth of entrepreneurship in Africa.

A dive into the report

The report described entrepreneurship in Africa as a phenomenon that can be approached from different angles, 

Entrepreneurship in Africa highlighted that the study of entrepreneurship is multifaceted and influenced by economic resource availability and constraints, political and governance systems, and related socio-economic factors touching on education and culture. All regions and populations have differing degrees of entrepreneurship, and this is true in Africa as elsewhere.

The report also has the following to say about the big four,

For instance, Egypt, Kenya, Nigeria, and South Africa account for about a third of the incubators and accelerators and 80 percent of investment on the continent. Although this is not the only measure of entrepreneurship, there are reasons to explain why some countries push ahead faster with startups, ecosystem development, and commercialization. In the cases of these four countries, their economies and populations are larger than most African countries.”

The report added that, 

Other populous countries like Ethiopia, the Democratic Republic of Congo, and Tanzania have not attracted comparable levels of investment activity for startups, suggesting more is required than population levels. Likewise, island states with higher per capita incomes like Mauritius and Seychelles have not developed a critical mass in innovative activities despite having higher levels of wealth and legal and institutional environments for business that are typically more highly rated than their peers in Africa.”

An additional consideration to the entrepreneurial dynamics is the level of financial sector development.   Most   African countries show limited financial sector development when measured by degrees of financial intermediation and investment in the economy. 

These indicators for Africa compared with other regions show the limited penetration of formal financial markets,  which reflects a  weaker environment that constrains market development for risk-based financing for new ventures.  Financial market development predicated on a   conducive business and investment climate helps create the structures for additional venture financing and risk-taking where regulated institutions are unwilling or unable to invest.

This may help explain  Kenya’s emergence as a  hub for innovative startups.  Although  Kenya  is  not among Africa’s top ten economies in terms of attracting FDI, it retains a ‘first mover advantage’

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