Investing In Women: What Do African Female Entrepreneurs Need?

March 19, 2015

Private equity financing is not easy to come by, even in a market as hot as Africa. The competition for funding is fierce, and the way the numbers play out is part of the bottom line. Businesses need to demonstrate not only success to date, but a strong potential for growth, expansion, and of course exit potential.

Thus, as Erika van der Merwe, chief executive officer of the Southern African Venture Capital and Private Equity Association, explained to AFKInsider in an email interview, “The bulk of private equity funding across Africa is for established businesses with proven revenue and profitability.”

Financing women-led businesses in Africa thus presents a challenge.

While African female entrepreneurs are as avid as any other entrepreneurs on the continent, their businesses tend to stay small. IMF research finds that “women make up 40 percent of [sub-Saharan Africa’s] non-agricultural labor force, but account for nearly 50 percent of the self-employed.”

This is the highest rate in the world, and three out of the top seven countries in terms of female entrepreneurship are in Africa.

However, women only represent 25 percent of employers, a figure shared by most regions in the world. Thus, to encourage the blossoming of female-founded businesses from micro-enterprises into powerhouses would require not only access to private equity financing, but access to the tools required to build a bigger and better businesses.

“Growth of female-led businesses”

Entrepreneurship might be said to require two steps: the establishment of a viable business, and the growth of that business into a larger enterprises that attract investor attention and financing.

To get started as a business owner, the list of requirements is generally fairly obvious: education, the infrastructure to conduct business, and access to critical inputs and finance.

When it comes to basic education, sub-Saharan Africa has certainly made stridesThe ratio of female-to-male secondary school enrollment has grown from about 65 percent in the 1970s to over 80 percent in 2010.

On the other hand, women still trail men quite significantly in tertiary enrollment, with just over 60 women for every 100 men at university.

This is an issue that would certainly need to be addressed if sub-Saharan Africa wishes to field more opportunities for the investment world to finance; while education certainly doesn’t guarantee business success, it can surely encourage it.

That being said, there are increasing numbers of women at the upper echelons of power and government, and as women filter into the ranks of the powerful they become role models for those who would follow.

The share of parliamentary seats held by women rose from 10 percent in 1990 to over 20 percent in 2012; Rwanda leads the continent, with female members comprising 57 percent of parliament.

Sub-Saharan African women also work in great numbers, with a female labor force participation rate (representing the rate of working-age women who are actually in the labor force) of over 63 percent, among the highest in the world.

 “There are still relatively few women at the top of African private equity but that is steadily changing and the numbers increasing across the continent… With regards to recipients of finance this too is strong and there are great examples of investee companies founded and headed up by women,” Nonnie Wanjihia, executive director of the East Africa Venture Capital Association, told AFKInsider.

“Shifting Social Norms”

The precariousness of getting to that stepping stone, of course, varies.

“There are enormous cultural, institutional, and legal differences across Africa,” said van der Merwe, “With each jurisdiction offering different degrees of economic freedom for women.”

One major and obvious constraint is the secondary role most women assume when it comes to paid work.

By estimate, worldwide women spend twice as much time as men on household work and four times as much time on childcare. They also tend to work in the informal sector and in traditional or low-paying roles.

Thus, encouraging further labor participation and entrepreneurship is not just a matter of providing the right tools in terms of education and finance: social norms will also need to shift to give women time to spend on their businesses, should they choose to.

Policy experiments to help encourage this shift abound, though some seem to be more successful than others. The key takeaway is that education in itself is not enough — the right kind of education can create the economic and social incentives required to make a change.

Another critical restraint is finance: one study found that differences in productivity between female- and male-owned businesses are largely due to inequality of access to “productive inputs.”

While it is a rather thorny and complex issue with not simple answer, the benefits to investing in women when it comes to entrepreneurship and work are well-documented.

“Investing in women”

Working women can have an outsize effect on macroeconomic growth; one estimate puts annual GDP per capita losses from women’s underemployment at up to 27 percent, depending on the region.

Women working is so important that the International Labor Organization regards it as the most powerful means of poverty reduction in developing countries.

This could in part be driven by the fact that women are more likely to spend their incomes on their children and their communities, creating what development experts call a “virtuous cycle” of ever-increasing returns.

More income sources for families can also help on a personal level, not only with respect to smoothing income but to tipping the balance of power in relationships (there is a wealth of economic literature on power and negotiation in relationships which is far beyond the scope of this article).

But, again, there is a large step between owning a small business and owning a high-growth, investor-backed one.

To get from small business to private equity-financed business will simply require more: more education, more access, and more opportunity. Start-up financing could be an important part of this.

Van der Merwe said, “Increased access to funding and business guiding at this early stage… would serve to break some of the many obstacles faced by women — and would help unleash broader and more balanced economic development and growth.”

The support of female entrepreneurs will also require those more basic general measures that help all entrepreneurs: education, infrastructure, access to finance and markets, and of course, for the large swaths of the African population it is relevant to, the very basics around health and nourishment.

For those ambitious women who wish to pursue it, a self-starting attitude is key.

“Women need to arm themselves with knowledge by, for example, learning about private equity from whichever source available,” said Wanjihia.

Both the EAVCA and SAVCA host regular networking events targeting women, for those either seeking funding or involved in the private equity industry already. Van der Merwe says that the SAVCA events are increasingly well-attended.

Thus, while the issue of encouraging entrepreneurship requires effort on a number of fronts, its benefits underscore a clear message: women can and should be a major part of the African powerhouse. It’s just a matter of getting there.

Source: AFK Insider

(0 votes) 0/5
Article Tags:
Article Categories:
Business

Leave a Comment

Please wait...

Subscribe to our newsletter

Want to be notified when our article is published? Enter your email address and name below to be the first to know.