Impact of Entrepreneurship on the Economy of a Country
Entrepreneurship plays a vital role in the development of a country’s economy as this is the key contributor to innovativeness, product improvement, reduction of unemployment and poverty.
Entrepreneurship, which is basically the practice of starting a business in order to earn a profit on newfound opportunities, can go a long way to stabilize the economy of a nation as well as generate massive returns to the government.
Entrepreneurship can impact the economy of a country in diverse ways.
According to Dr. Ercan Ekmekcioglu of Kyrgyzstan Turkey Manas University, it is through entrepreneurship that important innovations enter the market leading to new products or production process which eventually increases efficiency through bringing competition in the market.
Various factors have deterred emerging entrepreneurs from successfully starting their own business. Among the numerous factors cited by some failed startups in Africa’s most populous country Nigeria from a personal survey I conducted include, high and multiple taxes, lack of funding, electricity, and security.
In such environments, starting and sustaining a small business could be very tedious and only few entrepreneurs with extra personal qualities can survive. Creativity and a strong work ethic are vital as well as being detail-oriented and willing to research thoroughly and accept risks.
According to research conducted by The Global Entrepreneurship and Development Institute in 2015, it was found that USA is a world leader when it comes to supporting its entrepreneurs with respect to business formation, expansion, and growth followed by countries like Canada, Australia. They also finance new businesses through venture capital.
Fast forward 2020, Germany now ranks as the top Entrepreneurship country in terms of government support, financing and policies. Japan and the USA coming second and third respectively.
This type of financial capital is provided to early-stage, high-potential and riskier start-up companies.
These countries’ economies are ranking very high because they understand the impact entrepreneurs play on the growth of their economy. Their GDP is always on the increase. Unlike Nigeria, Ghana, Uganda, and most other Africa countries that refuse to accord entrepreneurs the high place they deserve and not providing enabling environment for their businesses to thrive.
Africa still got a long way to go. Kenya and Rwanda are fast coming up and South Africa has always been ahead of development in Africa with electricity and infrastructure in place to enable entrepreneurs to thrive.
Related: 10 Principles of Entrepreneurship
Small businesses are the heart of any country’s economy and a country that does not play with its entrepreneurs has a better chance of an improved economy.
The future of the African economy depends largely on its entrepreneurs as well as government policies on entrepreneurship.
WHAT ENTREPRENEURS CAN OFFER TO THEIR COUNTRY
Entrepreneurs have a lot to offer to their country of residence. According to Strive Masiyiwa, CEO Econet Wireless, an entrepreneur can do the following for his country;
- Create jobs
- Provide services and products needed in the country
- Create wealth (For themselves and their country)
Impact of Entrepreneurship on an Economy
Entrepreneurs pay tax when they sell goods, when they pay their employees and when they import goods, they pay the duties that are due, according to the law.
Using Apple as a case study, Strive said we all know what Apple sells: iPhones, iPads, iPods, etc.
These are consumer products, manufactured by the company, mostly in China, and sold around the world. The founder of Apple computers, Steve Jobs, died in 2011.
The company that he left behind generates billions of dollars in tax revenues, for his home country, the United States. This is used to pay the salaries of civil servants, build roads and other infrastructure, build schools, hospitals, civil defense, and a powerful army – This is wealth!
I could also say that about Dangote Group, Coca Cola, Toyota, Alibaba, Econet Wireless, Innoson Group, to mention a few.
According to Carree and Thurik, the concept of entrepreneurship is multidimensional and largely ill-defined. Understanding the role of entrepreneurship in the process of economic growth will, therefore, require a framework because of the nature of intermediate variables and connections which exist (Bygrave & Minniti).
The best examples of these intermediate variables include innovation, competition mainly characterized by exit and entry of firms, variety of supply and particular energy and efforts of investment by entrepreneurs.
Other conditions of entrepreneurship also add up when it comes to their contributions to economic growth (Robbins, Pantuosso, Parker & Fuller, 2000). These conditions include personal traits, cultural and institutional factors.
While entrepreneurship is all about the activities carried out by individuals (entrepreneurs), the concept of economic growth has often been relevant at firm level, industrial, national and regional levels(Robbins, Pantuosso, Parker & Fuller, 2000).
This implies that linking entrepreneurship to economic growth will be to amalgamate individuals to aggregate levels.
Considering this linkage however requires revisiting the definition of entrepreneurship, whereby entrepreneurs, either as individuals or a team, manifest their willingness and abilities to create new opportunities in the economy (Todtling & Wanzanbock).
In this manner, novel products, production modalities, organizational schemes, and product-market combinations are created. The entrepreneurs seek to introduce their newly crafted ideas in the existing market in the face of obstacles and uncertainties. They also make critical decisions in terms of business location, forms and the utilization of available resources and institutions.
Every great business, in the world, no matter how large it is today, was started by entrepreneurs.
Also note that it is not just large companies like Apple, Econet and Dangote Cement that create wealth. Even a street vendor, is creating wealth when he is successful. Even the guy who sells a packet of candies or airtime is creating wealth or the shop owner who sells provisions or wears also, they all pay tax thereby creating wealth.
To sum up the impact of entrepreneurship on economic growth, Carree and Thurik (2002) have provided five strands of empirical evidence to show their involvement;
Five Strands of Empirical Evidence of how Entrepreneurs impact the Economy Positively
- The first evidence mainly deals with the turbulence effect of entrepreneurship on the growth of the economy. Turbulence can be viewed as the total entries and exits in regions or industries and can easily be interpreted as one of the powerful indicators of entrepreneurial activities.
- The effect of and changes in size distributions in regions represent.
- The number of market participants in any industry will finally have an important effect on economic growth and this is recognized as another strand of evidence of the role of entrepreneurship in economy expansion
- The effect of the number of business owners and self-employed individuals in economic growth
- The economic history of previously centralized and planned economies will also have an influence on the economic growth of countries
Entrepreneurs are nation builders. I, therefore, urge entrepreneurs to be more creative and move up with trends. Countries must learn to value their entrepreneurs, as real partners of development. They must acknowledge their contributions, and celebrate them.
Updated: 27 March 2020
I Recommended You Read:
- How to Discover Your Purpose
- Causes of business failure
- Business Lessons from Warren Buffett
- How to Start a Money Making Blog