The Entrepreneurial Potential At The Bottom Of Africa’s Pyramid

The Entrepreneurial Potential At The Bottom Of Africa’s Pyramid

The bottom of the pyramid framework initially imagined an enormous market opportunity for multinational corporations to tap into high-volume, low-margin markets around the world. But it might just be local, small-scale entrepreneurs who make the most profound impact.

Africa is a young continent with a large so-called “bottom of the pyramid” population. There has been growing interest in the continent from investors and multinationals alike, with many South African firms in particular aggressively expanding into new markets and heightened mergers and acquisitions interest from abroad.

But while the growth of consumer spending is enticing, it would be a mistake to think of Africa solely as a consumer market, from both a developmental and business perspective.

Researchers Hsain Ilahiane and John Sherry of Iowa State University and Intel Corporation, respectively, point out the limitations of the idea , telling AFKInsider that “[Consumerism] assumes that customers are just passive receptacles for goods and services, may be beyond the simplest level of decision-making in the marketplace.”

“People are co-producers, and the idea of consumerism does not imagine a space for people to be producers. It’s the difference between ‘dumping’ development solutions on local populations and engaging the local community to invent, develop, and test their own hypotheses about what might work.”

And with a youthful and growing population, there is ample opportunity for such activity — especially in a region with a lack of formal employment routes for many.

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“We would be happy for students to get formal jobs, but it’s just not a realistic thing to plan for,” says Loren Crary, director of external relations at Educate!, a non-profit which provides a targeted program of business-related hard and soft skills to encourage entrepreneurship among secondary school students in Uganda.

Africa is a remarkably young continent, and with a relatively high birth rate it’s likely to remain that way for the coming decades. A UNICEF study estimates that by 2050, there will be nearly 1 billion children, representing 40 percent of the world’s youth. As more of today’s youth enter the workforce, the level of potential productivity and economic activity could be staggering.

Potential Productivity

“We believe that African youth can end poverty in Africa,” says Loren Crary of Educate!,“Youth are a majorly untapped resource in development efforts in Africa.” 

In other words, entrepreneurship may not just reflect a market opportunity; it could be the best appropriate route to encouraging employment for Africa’s growing population. Small scale entrepreneurs also have the benefit of specialized local knowledge, flexibility, and adaptability, which could may serve that growing “BOP” customer base better than foreign multinationals.

For example, in a 2008 study of street vendors in Morocco, Ilahiane and Sherry argued that multi-nationals seeking to do business in Africa could learn quite a lot about serving local customers from the informal sector. Informal vendors are characterized by an approach that is, to quote the paper, “flexible and light inventory, face-to-face,… and hyper [mobile] — and always in search of the next ‘in thing.’”

In other words, a street vendor’s ability to rapidly respond to changing market demands and offer exactly what consumers want at the price they require could be a major source of competitive advantage.

It’s also an approach that recognizes the enormous diversity across the continent. “It is ridiculous to paint the whole BOP as the ‘single largest market opportunity in the history of commerce.’ There’s nothing ‘single’ about it. In fact, the dimensions of variability across the so-called BoP communities are much greater than across developed economies,” say Ilahiane and Sherry.

No Room For Replicating

As Graham Stokoe, Africa private equity leader at Ernst & Young, described it in a previous interview with AFKInsider, “You have to be very wary about applying the same approach and the same business model [across the continent.” He says, “It’s very dangerous to replicate a South African [business] model in Nigeria, same as you can’t replicate a Nigerian model in Kenya.”

Of course, that doesn’t mean that entrepreneurs on the ground couldn’t benefit from additional support.

In addition to a proliferation of business accelerator programs. Ilahiane and Sherry note that factors such as legal, tax, and regulatory regimes that support small business will, of course, help them to grow.

And perhaps this is all underscored by the power of skills development. Speaking about students in the Educate! program, Crary says, “We didn’t give them money, we gave them a course and a mentor.”

“When you see what small investment in a young person’s skills can do and where they can take that it’s really exciting.”

Educate! students are taught critical basics like accumulating capital through savings, developing sales relationships, and networking and negotiating. In addition to training, students are partnered with mentors who themselves completed the program, building a base of knowledge and experience that can be accessed by anyone in the program.

The program has produced a number of entrepreneurs, with a diverse range of business activities spanning every conceivable market niche.

Entrepreneurship also has the potential for greater social benefits.

For development, entrepreneurship might also present a path to steady and powerful economic growth. After all the, American economy rests firmly on the strength of its small businesses, which comprise about half of the private sector and 99% of all firms. Could the same hold true for Africa?

More immediately, growing entrepreneurship also means the potential for more home-grown multinationals, and for attracting foreign partners, investors, and acquirers.

For example, Kenya’s Interconsumer Products’ health and beauty division was purchased last year by cosmetics giant L’Oréal for over $150 million. The company was founded in 1995 byPaul Kinuthia, who started out mixing batches of shampoo at home and selling to local beauty salons. 

Last year, the firm as a whole enjoyed revenues of nearly $190 million.

With further investment into the continent’s youthful population, and a commitment to supporting the business activities that can be developed, it would not be surprising to see many more such local — and international — empires being created.