By Dr. Jean C. Kouam, Simplice A. Asongu, Bin J. Meh, Prof. Robert Nantchouang, Fri Asanga, Denis Foretia (Download Pdf Version)
Overcoming the Financial Challenges of Business Support Organizations in sub-Saharan African Countries: The cases of Burkina Faso, Cameroon and Ghana
Note: This policy brief was written as part of the Social Entrepreneurship for Sustainable Development in sub-Saharan Africa project, conducted by the Nkafu Policy Institute between September 2020 and August 2022, and funded by the International Development Research Centre (IDRC).
In sub-Saharan Africa (SSA), business support organizations (BSOs) can play a key role in promoting the growth of small and medium-sized enterprises (SMEs) (World Bank, 2017). However, they still face many challenges in fulfilling their missions. For example, similar to the businesses they support, BSOs have many technical and managerial constraints that limit their actions and one of the main challenges is access to finance (Nkafu Policy Institute, 2022). The goal of this paper is to inform key actors in the entrepreneurial ecosystem about the need to promote business support structures in SSA. This policy brief is a non-technical summary of Kouam et al. (2022) and is organized into three main sections: the main factors explaining the financial health of a support structure in the entrepreneurial ecosystem is the focus of Section 2, while the findings are discussed in Section 3. Section 4 concludes with implications and future research directions.
Factors Explaining Financial Health of Support Organizations in Developing Countries
The existing literature on the factors explaining financial health and the choice of a funding model by an organization in the entrepreneurial ecosystem has largely focused on programs related to entrepreneurial education and university incubator development (Fleaca et al., 2018; Kumari et al., 2019); empowerment and inclusion of vulnerable groups and gender equality (Tchamyou et al., 2021); development of organizational practices and strategies (Lotfi et al., 2018); capacity and willingness to promote innovation (St-Jean & Labelle, 2018); and encouragement of environmentally friendly businesses (Asongu & Salahodjaev, 2022).
Regarding the impact of training for entrepreneurs on the financial health and the choice of financing model, most authors state that specific skills are needed to enable entrepreneurs to achieve targeted development goals and improve societal value added (Lans et al., 2014; Kouam, 2021). According to Lasrado et al. (2016), the impact of university incubators on startup performance can be established beyond the incubation period compared to non-university incubators. By extension, companies that have been incubated within universities tend to continuously improve compared to companies incubated outside of the university framework. Tchouassi et al. (2018) confirm this finding by showing that when entrepreneurial knowledge is identified and consolidated among youth and women, it promotes self-reliance as well as a solid foundation for entrepreneurial and economic developments. Along the same line, Kumari et al. (2019) assess the relevance of higher education institutions in creating, promoting, and sustaining social innovation and conclude that collaborative learning should be actively promoted in High Educational Institutions (HEIs), including through systematic changes and open collective action platforms for more entrepreneurial actions in line with social needs.
However, the relevance of entrepreneurial training in promoting social innovation and social enterprise performance depends on a number of internal factors namely: ICT development and business climate (Safoulanitou et al., 2013); enterprise size (Adeyeye et al., 2015), ecosystem relevance (Cheah & Ho, 2019), managerial skills (Almeida & Fernande, 2008; Christensen et al.,2017) and in some cases by the replication, adoption, and adaptation of technologies and methods that have shown favorable results elsewhere (El Eljouis, & Abassi, 2019; Elj (2014).
With respect to external factors, Cheah et al. (2016) put emphasis on the importance of government funding and public action in driving the identified internal factors. While economic openness is articulated by Keller (2004), Yurij et al. (2010) and Ayyagari et al. (2011) instead put emphasis on the relevance of exporting companies in pushing for such innovation.
With regards to barriers to social innovation, some of the established characteristics include inadequate training, lack of access to finance, bureaucracy and poor ICT infrastructure (Hadjimanolis, 1999); poor technology, technical inefficiency, poor managerial skills, weak institutional support, (Clancy, 2001). According to Lim and Shyamala (2007), compared to internal barriers, external barriers are more relevant, which in increasing order of importance are: economic-related, information-oriented, and skill-related. Financing constraints are identified by Safoulanitou et al. (2013) as the main challenge to innovation, whereas Rahmouni (2014) argues that a fundamental source of innovation barrier is the reliance on third-party technology agencies.
Opportunities for Strengthening the Financial Health of Business Support Structures in sub-Saharan Africa (Findings)
There are several measures that can be considered by stakeholders in the entrepreneurial ecosystem to strengthen the financial structure of business support structures in sub-Saharan Africa. Kouam et al. (2022) consider some factors, which refer to the main services that business support organizations offer to entrepreneurs and also their managerial skills. By identifying a set of factors that can help strengthen the financial health of a given support structure, it appears that the financial situation of a business support structure does not basically depend on the time spent on supporting the entrepreneurs, but rather on other factors related to the quality of the services offered to them. As a result, it appears that an improvement in the quality of training offered to enterprises by business support organizations (BSOs) would significantly and positively contribute to improving their financial health as well as their financing model in the selected countries (Burkina Faso, Cameroon, and Ghana). Accordingly, a support structure only organizes training for the benefit of entrepreneurs to the detriment of other services. This improves the probability of having limited financial health by 22.9% instead of robust financial health (Kouam et al., 2022).
In the same line, the organization of boot camps programs (to build the capacity of entrepreneurs), Business To Business (B2B connections, mentorships programs, and the implementation of an excellent track record of entrepreneurs accessing and securing different funding opportunities (e.g., impact investors, angel networks, venture capitalists, NGOs/INGs/multilateral grant-making organizations); can also positively affect the financial health of support structures organizations in the selected countries. The financial health of the support organizations can be strengthened by enhancing the financial management and the skills of the leadership team (who must be highly qualified, with in-depth experience and appropriate degrees, keep up to date with incubation industry best practice and have demonstrated a commitment to improving and building programmes). It is also important for the organization to have a strong and consistent brand image, and a highly developed marketing strategy using multiple channels. Moreover, it is worthwhile to take into account the quality gender/inclusiveness programming, partnerships focused on gender and inclusion, training programs and a good proportion of traditionally underrepresented entrepreneurs in programs that are light and intensive.
The results obtained reflect the need to strengthen the technical and managerial skills of business support structures in Burkina Faso, Cameroon, and Ghana. Such a strategy is very useful for improving the productivity and competitiveness of enterprises in that, it promotes their access to financing, the market, and new technologies.
By providing tailored support to the businesses they support, business development organizations can contribute to a number of sustainable development goals, which are necessary to ensure inclusive and sustainable growth (i.e., ensuring access to quality education and promoting learning opportunities) but also to ensure the longevity (sustainability) of their businesses. However, it is important that this support to companies is adapted to the characteristics of the company (size of the company, gender of the manager, pursuit of the SDGs), but also to the specific needs of the sector of society in which the company evolves (social innovation). Such a measure would help make companies much more attentive towards SDGs, which should result in potentially faster progress towards the corresponding SDGs.
The purpose of this policy brief was to summarize Kouam et al. (2022) who showed how to overcome the financial challenge of business support organizations in sub-Saharan Africa. The findings of the corresponding study indicate that the financial situation of a support structure depends on certain key factors related to the quality of services offered to entrepreneurs. Therefore, a support structure with strong technical and managerial skills will have fewer financial difficulties than those with limited skills. The attendant results complement those obtained by Tang and Yang (2021) and Ajide and Alimi (2021) in the perspective that a given support structure should invest in entrepreneur training if and only if the expected benefits in terms of productivity gains for entrepreneurs exceed the training costs.
In accordance with the results obtained, it is essential for various existing business support structures to adapt their offers to train entrepreneurs with the stage of development of the companies they support. The following relevant recommendations to support structures for businesses, public authorities and entrepreneurs, emerged from the underlying study.
- First of all, it is relevant for support structures to consolidate the quality of the corporate training programs they offer so that the attendant programs are consistent with the United Nations’ SDGs. In essence, the corresponding training should be tailored to address corporate specificities and thus adapted to the level of corporate development, with particular emphasis on sustainable development.
- The development models of businesses in sub-Saharan Africa must integrate the training of staff. This is consistent with the new theories of endogenous growth, especially as it pertains to the contribution of the accumulation of human capital in economic prosperity and the productivity of firms (Tang & Yang, 2021).
- In addition to implementing technical and specialized public structures for the entrepreneurship promotion and business sustainability, public decision-makers should provide unwavering support to consolidate private business structures, which in fact remain confronted with a plethora of problems, in particular, those related to financial access.
- The training programs for entrepreneurs must also be adapted to each category of support structure in the light of challenges faced by the various companies supported and focused on achieving the SDGs by 2030.
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