Entrepreneurship Framework-Analysis on Access to Finance

Entrepreneurship oriented toward high growth
in the formal economy is a nascent phenomenon in Tanzania , particularly in the technology subsectors targeted in this assignment. Only a handful of entrepreneurs were identified, and nearly all of them were in the very early stages of development. Furthermore, other stakeholders interviewed identified many factors that contribute to the lack of robust entrepreneurs, but they nearly all confirmed that such high-growth entrepreneurs in the sectors were few and far between. The key points listed below summarize the observations gained on the biggest barriers
to angel investment in high-growth technology entrepreneurs in Tanzania:

  1. There are few business mentors and no active angel investors. There are few successful entrepreneurs to guide and inspire new entrepreneurs. Stakeholders identified the lack of success stories of entrepreneurship in traditional sectors, much less in technology, as a primary inhibitor to interest from potential entrepreneurs.
  2. The natural resources “curse” is inhibiting technology sector growth. With the discovery of abundant natural resources, the focus of investment and the majority of economic activity have been oriented toward developing companies to supply the value chain of large enterprises to displace import substitutes. Stakeholders indicate that while there has been some success, these companies are generally not innovative. Furthermore, stakeholders indicated that there is a considerable challenge to source domestic inputs, as small local producers do not have sufficient negotiating power nor quality control standards to sell to large extraction companies.
  3. A critical mass of medium-size businesses does not exist. Tanzania has megaprojects and large companies, very few medium companies, and a large amount of small informal businesses (nearly 90 percent of the private sector). This results in small businesses being unable to join the value chain to eventually sell products and services to large companies, who largely rely on foreign suppliers. Stakeholders confirmed that part of the reason for this is that most entrepreneurs prefer staying small and informal to stay unnoticeable and not show public success
    so they don’t have to become the provider
    for family and friends. They would rather launch other small informal businesses than grow the initial one. The absence of medium companies to play a convening and distributing role exacerbates broken value chains between small producers and large client companies.
  1. The risks associated with entrepreneurship and, to a lesser extent, angel investment are not assuaged by strong trust in counterpart stakeholders. Aversion to risk was reported at every level of the ecosystem. Entrepreneurs do not trust wealthy individuals or catalytic agents and fear having their idea or business stolen. Wealthy individuals do not trust local entrepreneurs and domestic economic growth to provide returns.
  2. The government lacks a united vision and clear strategy for the development of the
    key high-growth sectors.
    The government
    is struggling to create and follow a clear national strategy on the development of the technology sector and innovation. This is due to a prioritization of basic poverty alleviation through sectors such as agriculture, education, health, and infrastructure. There is a clear
    lack of operational coordination between all actors in supporting early-stage technology companies, leaving entrepreneurs hanging along the development path.
    entrepreneurship oriented toward hIgh growth In the formal economy Is a nascent phenomenon In mozambIque, partIculary In
    the technology subsectIons.
  3. There is a general lack of financial and managerial skills. From the available
    statistics and the interviews conducted, most entrepreneurs that do access initial capital mismanage it due to a lack of financial literacy and management skills. Personal pressing financial problems were also indicated as a cause of low financial discipline in management terms. Due to this, examples of seed funding usually did not translate into business results. There are Business Development Services (BDS) solutions available, but these are either too expensive for entrepreneurs to afford, led by a nonexpert in a governmental agency, or are a short-term generic training insufficient
    to improve managerial skills. Stakeholders indicate that technical skills are sufficient.
  4. Financial instruments tailored for early-stage financing for technology are not available. The allocation process of available early-stage financing for start-ups through grants and loans is insufficient. However, stakeholders indicate that the technology sector is perceived as particularly high risk and low return,
    hence few options are available to potential entrepreneurs for early-stage initial capital beyond grant programs. Microfinance is quickly accessible. However, stakeholders indicate that rates are unaffordable for a start-up. Grant programs exist, but they have had very limited success in providing resources to start-ups.
  5. The lack of growth financing for a small number of tech SMEs inhibits growth potential of start-ups. There is a genuine lack of growth financing for start-ups that are looking to grow into small or medium businesses, although it should be noted that these are very few in number.
  6. The policy environment does not adequately promote entrepreneurship and investment in the tech sector. The cost of doing business—registration and licensing, opening ank accounts, obtaining and enforcing intellectual property protection, paying taxes and accessing information—is high for entrepreneurs. Outdated policies in rapidly changing subsectors such as mobile technology and the absence of guidelines in relatively nascent areas, including biofuels and e-commerce, stunts progress in the tech sector and inhibits the growth of technology entrepreneurship. While the government seems to recognize the employment potential through entrepreneurship, its initiatives are under- capacitated and are not actively supporting technology entrepreneurs.

Unmet Needs and Support Gaps
Entrepreneurs in Tanzania face particular difficulty overcoming key challenges in their path to establishing profitable businesses. In addition, the pool of growth-oriented entrepreneurs is quite small, and technical skills among that pool are limited. Chief among the challenges facing this small group of entrepreneurs is weak mentorship, coupled with a lack of coordination between support programs. The absence of real co-working space, and the focus on business plan competitions, can have the effect of making entrepreneurship more of a game than a career, particularly in the absence of a clear “next step.” Stakeholders indicate that most entrants into entrepreneurship are from wealthy, well- connected families and will most likely revert to government or international employment after tinkering for a while.

Furthermore, market research and other business services are either of low quality or are prohibitively expensive.

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