Part 1

On the global chart, Uganda ranks in the echelon of the most entrepreneurial countries.  This, one would argue, is enough reason for having its GNP per capita being the highest in Africa. At the moment, this is not so. The current disconcerting question hence is what the missing link to economic development is. Further anecdotal evidence reveals that although the Ibos of Nigeria, the Kikuyus of Kenya and the Chagas of Tanzania are the most entrepreneurial communities in Africa, the countries they represent are not necessarily ranked so, in terms of entrepreneurship development – again there is a missing link!

Preliminary study has pointed at legal and economic empowerment, and support services as the key factors to be worked on if any meaningful entrepreneurial progress is to be achieved. Ventures all over Africa are facing a dilemma because entrepreneurship has often been perceived as a preserve for the unlucky or a last economic empowerment resort. No business can survive without a carefully blended mix of skill, support services and financing. The necessity for funding, acquisition of land, labor and capital in a way will depend on the availability of financing.

Worth noting is that business ventures live (if at all it so manages) through several development stages. These are: The idea or concept stage; the start up stage; growth and development; maturity; preparation for the harvest and the harvest.

Definitions

To the common mind, venture capital means ‘financial resources for business’ or ‘financial resources for business start up’ whereas micro means ‘small’ or ‘start up’ for the purposes of our discussion. Both terms refer to the same thing: capital for business, with venture capital being more general, as to include capital for both micro and non-micro enterprises, assumedly small and medium and thus the term Small and Medium Enterprises (SME) or Small and Medium Ventures (SMV). Microfinance therefore, is finance for small ventures or enterprises. It could be required at any stage of the business development lifecycle. Finance is the study while financing is the action, of allocating scarce resources to uses. Let me not dwell on definitions for this will tend towards scholarship thus undermining the core subject; basic understanding of the missing link in the process of entrepreneurship development.

The unfortunate attitude with which micro-finance institutions greet business start-up ideas is conceivably one of the greatest plagues to entrepreneurial impetus. A potentially profitable concept will remain disregarded by many financial institutions so long as it does not become a living physical and seemingly bright -future venture. Consequently, many African entrepreneurs go into the initial stages alone and struggle for survival. Microfinance attention is not easy to come their way. The infant and delicate stages past, the challenge is to compose a business plan where one has to provide financial predictions and lengthy tales of anticipated success. Woe to those without the necessary formatting or presentation skills. It is Charles Darwin's theory: survival for the fittest.

A survey recently conducted in three African countries involving 60 SME’s displayed the general inability of financial institutions to determine at first sight, profitability of an entrepreneurial proposal and back it up through micro financing. This skepticism has often contributed broadly to their dwindling profitability and to some, possible collapse. Out of the sixty micro enterprises surveyed, 34 were financed from personal savings; 16 from friends and relatives; 5 from bank loans; 3 from other micro-finance institutions and 2from government sources.

Seemingly, governments have abandoned their business financing role hence stagnating entrepreneurship. The establishment of Entrepreneurship Audience Centers (EAC) to serve as avenues for collecting venture formation ideas and gauging the need to financially support such ideas into businesses is imperative. It is alarming that at least 83% of businesses are funded through sweat equity: friends’ and personal savings.

Key among the factors adversely affecting access to borrowed finance is: inability on the part of the starter, to raise collateral; lender skepticism about the repayment ability; inability of the business owners to prepare an appropriate business plan, stringent rules and unfriendly lending terms.

Suggested remedies

Governments should provide assurance of collateral for citizens who qualify for funding. The definition of collateral should be broadened to include such aspects as entrepreneurial drive, prowess and experience. Business owners and shortlisted beneficiaries should be trained on preparing financial documents and sound management of working capital. There ought to be further liberalization of financial markets and the amendment of the listing conditions of capital markets authorities, to promote roll up initial public offers. Credit to start up businesses should be advanced in kind as Governments intensify the set up of development of Business One Stop Services (BOSS).

Bridging or Mezzanine Financing

Low capital start up from family, friends and other relatives works wonders initially. It is however difficult when it comes to growth, for which subsequent rounds of financing are required. It is great self deception to suppose that a scantily capitalized venture will survive for long in the presence of the hunger for self sustenance characterizing the present day SME or SMV owners. For most of them, failure is almost evident unless intervention is available, by way of mezzanine finance.

Averagely, 58 percent of rural and suburban businesses hardly celebrate their fourth birthday and if they do, only 8 percent make it beyond five years. Conclusively, the survey adumbrates the fact that only up to nine percent of such ventures are successful beyond five years! These are highly likely to be those which had no start up financial deficiencies-see the chart to the right. Further anecdotal proof indicates that out of the 8.6 percent which live at least for five years, only 30 percent (or around 3 percent of the total) qualify to be in the category of SME, according to the definition by the International Finance Corporation (IFC), which defines SME as any formally registered business employing at least 5 to 150 people with a turnover of between $ 100,000 and $ 3 million. Such a definition almost undermines any good entrepreneurship promotion intention, since the majority of firms that qualify for the category do not as such need to be lent money.

The contrasting sentiment is that the 3% which qualify to be under that definition have already worked out financial miracles for themselves. It is high time our financiers shifted funding attention towards the firms struggling for survival which constitute at least 80% of entrepreneurial ventures. This move if taken seriously is certainly curative and welcome. By it, employment will come, turnover will go up, and failed enterprises will be revived, thus fostering entrepreneurship development.

Forming strategic alliances

This is generally lacking since it is notable that most of the venture owners want to enjoy returns alone and the desire to venture alone is pretty high. Our survey data will showed that 74 percent of business ownership was Sole proprietor; 23 percent Partnerships; and 3 percent Limited Companies.

Policy Framework and Support Services

While there is a general consensus on the role of entrepreneurship in achieving sustainable growth, research has raised the observation that there exist intra-country and inter-country variations in entrepreneurial activity. Entrepreneurship policy refers to guidelines or measures taken to encourage people to start and own a business enterprise as an alternative employment. The measures address motivation, opportunity, skills and resources.

Different policy frameworks have given rise to different SME development achievements in different countries. For example, using the Framework Conditions Model and Total Entrepreneurship Activity (TEA) Index, the Global Entrepreneurship Monitor (GEM), only Uganda and South Africa are found with significant entrepreneurial activity. It does not necessarily take a learned mind to ask where other African countries are classed, and why Uganda is ranked higher than South Africa. Similarly it is not difficult to mention policy framework and its administration as key to these differences.