Africa needs more large firms, not more entrepreneurs, for economic growth

The entrepreneurial ecosystems (EE) approach is often promoted for Africa’s growth, but Africa already has many entrepreneurs. Instead of increasing entrepreneurship, researchers argue for strategies drawn from East Asia’s development and Schumpeterian growth theory—both of which oppose EE thinking. These approaches suggest that Africa should focus on building large, productive firms and absorbing existing technologies, rather than relying on start-ups, to achieve long-term, sustainable economic development.

Many experts suggest using the entrepreneurial ecosystems (EE) approach to help grow Africa’s economy, especially in poorer countries. EE looks at how things like roads, money, rules, and skilled people can come together to support business growth. But Africa already has more entrepreneurs than anywhere else—mostly people working for themselves because they have no other choice. This raises an important question: Is encouraging even more entrepreneurship really the best path for Africa’s growth?

To gain more insights, a research team including Professor Alex Coad from Waseda Business School, Waseda University, Japan, critically analyzed EE’s relevance for Africa by examining alternative development frameworks and Africa’s current entrepreneurial and economic landscape. The team included Dr. Clemens Domnick and Dr. Pietro Santoleri from the European Commission’s Joint Research Centre and Assistant Professor Stjepan Srhoj from the University of Split, Croatia.

“We were concerned that a number of entrepreneurship scholars seem to be pushing an agenda for Africa’s economic development based on personal ideology rather than empirical evidence,” says Coad.

To explore whether entrepreneurship is the right path for Africa’s economic growth, researchers reviewed two major development frameworks—East Asia’s successful growth strategies and Schumpeterian growth theory—and compared their insights with the EE approach. They found that the strategies and policies from these frameworks differ significantly from what EE promotes.

First, East Asian countries like Taiwan and Korea, and Southeast Asian countries like Singapore and Malaysia, grew rapidly by focusing on building large firms, offering strong government support, exporting high-tech goods, and attracting foreign direct investment (FDI) and multinational corporations (MNCs). In contrast, the EE approach often supports self-employment and small firms, encourages minimal government involvement, focuses on local markets over exports, pays little attention to FDI and MNCs, and avoids picking specific sectors. While the researchers do not suggest that Africa should copy East Asia exactly, they argue that its strategies can be adapted to Africa’s unique challenges and opportunities for sustainable development.

Second, Schumpeterian growth theory argues that the right policies for growth depend on how close a country is to the global technological frontier—how advanced it is in terms of technology. Countries that are far from this frontier can grow faster by adopting existing technologies and learning from others. Countries near the frontier, on the other hand, need to innovate and invest heavily in research, which is more difficult and expensive.

Sub-Saharan Africa is far from the frontier. It has the lowest economic complexity index and, between 2020 and 2023, received less than 1% of global venture capital investment. This suggests that an investment-led growth strategy may be more effective than one focused on boosting entrepreneurship.

The researchers also presented empirical evidence showing that Africa does not need more entrepreneurs. The continent has very few large firms, which are critical for high productivity, job creation, exporting, and supporting the growth of small- and medium-sized enterprises in developing economies. It also has too few medium-sized firms because small, informal firms struggle to scale. Furthermore, high self-employment rates were associated with lower GDP per capita, which could be attributed to the excessive entry of poor-performing entrepreneurs.

Considering these trends, Coad emphasizes, “The African continent is in last place in terms of economic development, although it comes first in terms of having the world’s highest entrepreneurship rates (measured in terms of proportion of self-employed entrepreneurs). Boosting entrepreneurship further seems like a step in the wrong direction. The bottleneck is a lack of large firms. Africa should focus on reducing total entrepreneurship rates and building large firms.”

These findings should help policymakers avoid over-relying on entrepreneurship as a solution for driving economic development in lagging countries.