Why Africa Needs Fewer Entrepreneurs and More Large Firms for Sustainable Economic Growth

Illustrative Image: Why Africa Needs Fewer Entrepreneurs and More Large Firms for Sustainable Economic Growth
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Contrary to popular belief, Africa’s path to economic prosperity may not lie in promoting more entrepreneurship. According to a new study led by Professor Alex Coad of Waseda Business School, Japan, what the continent truly lacks is not entrepreneurial spirit—but large, productive firms capable of driving structural economic transformation.

Africa is often celebrated for its vibrant entrepreneurial culture. In fact, it has the highest rate of entrepreneurship in the world, with many individuals self-employed out of necessity rather than opportunity. However, this high rate of informal, small-scale entrepreneurship has not translated into significant economic growth. In fact, data shows that higher self-employment rates often correlate with lower GDP per capita. This disconnect raises a fundamental question: is encouraging more entrepreneurship really the right policy approach for Africa?

To answer this, a team of researchers—including Dr. Clemens Domnick and Dr. Pietro Santoleri of the European Commission’s Joint Research Centre, and Assistant Professor Stjepan Srhoj from the University of Split, Croatia—collaborated with Professor Coad to critically assess the relevance of the widely-used Entrepreneurial Ecosystems (EE) approach in Africa. Their findings, published in The Journal of Technology Transfer on May 27, 2025, challenge current development strategies that prioritize entrepreneurship above all else.

Rethinking the Entrepreneurial Ecosystem Approach

The EE framework focuses on creating supportive conditions for entrepreneurship by improving infrastructure, access to finance, regulatory environments, and skills training. While useful in many contexts, the researchers argue that this model is ill-suited to Africa’s unique economic realities. It tends to favor small businesses and self-employment, discourage direct government intervention, de-emphasize export orientation, and largely ignore the role of multinational corporations (MNCs) and foreign direct investment (FDI).

This contrasts sharply with the models used by many East and Southeast Asian nations, which successfully transformed their economies over recent decades. Countries like South Korea, Taiwan, Singapore, and Malaysia achieved rapid industrialization by focusing on building large domestic firms, attracting FDI, exporting advanced goods, and maintaining strong state-led industrial policies. These nations did not rely on mass entrepreneurship but on structured, state-supported corporate growth.

The study suggests that Africa can adapt lessons from these regions rather than attempt to copy them directly. Policies that emphasize firm scaling, government support, and international market integration could be far more effective for Africa’s long-term development than continuing to promote widespread, low-productivity entrepreneurship.

Schumpeterian Growth Theory and Technological Distance

The research also draws from Schumpeterian growth theory, which posits that countries should design growth policies based on their proximity to the global technological frontier. For technologically advanced countries near the frontier, innovation and research are key drivers of growth. But for countries farther from the frontier—like many in Sub-Saharan Africa—adopting and adapting existing technologies offers a faster and more efficient path to development.

Currently, Africa lags significantly in economic complexity and technological advancement. Between 2020 and 2023, the continent attracted less than 1% of global venture capital investment and remains near the bottom of global innovation indices. This makes it clear that the continent is not in a position to grow through innovation-driven entrepreneurship alone. Instead, what’s needed is an investment-led strategy that builds productive capacity through larger firms, industrial clusters, and better integration into global value chains.

The Missing Middle: Large Firms and Development

One of the most significant findings from the study is that Africa lacks a critical mass of large and medium-sized enterprises. Most economic activity is concentrated in small, informal businesses that are unable to scale or increase productivity. The so-called “missing middle” in African economies limits the continent’s ability to generate formal jobs, expand exports, or achieve structural transformation.

Large firms play a pivotal role in economies by:

• Creating formal employment opportunities at scale

• Enhancing productivity through capital investment and technological adoption

• Serving as anchors for supply chains that support smaller businesses

• Competing globally and driving foreign exchange earnings

In African countries, the dominance of small firms and the scarcity of larger enterprises has created an economic bottleneck. According to Professor Coad, Africa is unique in that it ranks last globally in terms of economic development but first in terms of entrepreneurship rates. This paradox indicates that the high rate of necessity-driven entrepreneurship may reflect economic underdevelopment, not resilience or innovation.

“Boosting entrepreneurship further seems like a step in the wrong direction,” Coad asserts. “The real bottleneck is the lack of large firms. Africa should focus on reducing total entrepreneurship rates and nurturing the development of large, productive firms.”

Implications for Policymakers

This study provides a much-needed critique of prevailing economic development models in Africa. It challenges policymakers, international donors, and development agencies to reconsider their heavy emphasis on entrepreneurship promotion as a panacea for underdevelopment.

Instead, a shift toward industrial policy, infrastructure development, skills upgrading, and targeted support for firm growth—especially in strategic sectors—may yield more sustainable and inclusive outcomes. Policies that enable small firms to grow into medium and large enterprises should be prioritized, alongside measures that attract FDI and foster regional integration.

In sum, Africa’s economic future may not rest on producing more entrepreneurs, but rather on building the institutions, infrastructure, and industrial capacity necessary to support large-scale, high-productivity firms that can transform the continent’s development trajectory.