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 strides. The 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.
1 comment:
Right away I am going away to do my breakfast, afterward
having my breakfast coming over again to read additional news.
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