Entrepreneurs and their small-scale enterprises have been correctly tagged as the engine for sustainable economic growth and innovation throughout the world. Entrepreneurs, supported by the massive technological discoveries and innovations they brought around, are indeed the life line of the global economy.
The touch of the global economy, which is now felt everywhere including Africa, with the ever expanding outreach is the result of the innovative entrepreneurial undertakings of this brave business community active through¬out the world.
Unfortunately, entrepreneurs in many corners of Africa are insufficiently aware of this phenomenon due to their limited interaction with the rest of the world economy. Many of them have continued to devote their full time and energy in a limited local domain and static business which have never guaranteed any sustainability and growth.
This narrow outlook is not only the cause of unsustainable business and growth but also one of the causes of the downfall and untimely death of many indigenous business ventures in the continent. The unpreparedness to boldly confront the global business and socioeconomic reality is perhaps one of the reasons why the continent lags behind.
According to studies done early this century across the continent, most African entrepreneurs are owners of small and medium enterprises (SMEs). Consequently the modern and productive economic sectors in Africa are dominated by small businesses. This reality gives them the ultimate responsibility of playing a prominent role in promoting and nurturing the tradition of innovation and creativity.
Researches have reached to a conclusion that African SMEs are affected by the growing global competition and challenges they face in virtually all business areas including manufacturing, trade, finance, technology, transport and communication, information management, entrepreneurship, etc… This was diagnosed to be largely due to the attitude of Af¬rican entrepreneurs, which has been characterized as being more focused on local market domains which might not guarantee a long-term sustainability and growth given the current global business turbulence.
Seen in light of the African experience and its turbulent history, Eritrea’s rich entrepreneurial tradition, despite experiencing serious setbacks, remains a formidable experience. Entrepreneurial skills that were acquired under the Italian colonization and the British Administration were left to stagnate without receiving further training and skill improvement programs during the Ethiopian occupation. Lack of enabling environment forced many skilled Eritreans to abandon the country, and some their professions totally.
Consequently Eritrean entrepreneurship was more or less a process of “adaptation” on the whole rather than “innovation” up to the independence of the country in 1991. The entrepreneurial success of the owners of the SMEs has been a result of the human factor dedication, hard work and responsibility.
First, Eritrea, which once had abundant skilled manpower for basic industries, had suffered a tremendous setback due to neglect and lack of opportunities and training under the Ethiopian regimes that ruled it for thirty years. The country’s production facilities were left to deteriorate and thus lacked production capacities to satisfy the local market let along exporting to neighboring countries.
Second, Eritrean entrepreneurs were deprived of advancement, training and exposure to new technology and information. As is the case with all occupying forces, education and training suffered the most under successive Ethiopian administrations.
In the third place, the enabling environment needed to for SMEs to foster was not there to stimulate entrepreneurs to play an active role in the development of the economy.
After independence the Government of Eritrea took serious steps to rehabilitate and modernize the existing industries and pro¬mote the entrepreneurial culture that was reduced to informality. The Government accelerated the privatization of the parastatals by either offering private shares or selling them outright to individuals or groups. By way of saying the government boosted the enabling infrastructure and environment for entrepreneurship.
From the outset, the Government viewed the private sector as the key to economic growth and took steps to promote its growth. The new government began to operate the state-owned industrial sector inherited at independence on a commercial basis and progressively began to privatize it. According to a report prepared by the Regional Program on Enterprise Development conducted in December 2002, by the end of 2001, it sold off 35 of 41 large public enterprises. It reformulated the investment code and established the Eritrean Investment Center.
Between 1992 and 1997, the Government of Eritrea approved 500 new companies. The Business Licensing Office was designed to be a one-stop shop. The Chamber of Commerce and other vehicles were used to gather input from the business community. Indus¬trial estates were established on the outskirts of Asmara, Dekamhare, and Dubarwa (with little infrastructure), and housing estates were started for investors including the diaspora.
The result was that, the manufacturing sector expanded by about 50 percent from 1993 to 1997, according to rough estimates compiled by the International Monetary Fund (IMF). The Government’s effort to promote private sector–led growth however was solely grounded in a tradition of entrepreneurial spirit that has survived periods of conflict and other shocks.
The three fundamental elements necessary for entrepreneurial development; education, labour and capital were to become treacherously elusive in the coming years. Many Eritrean entrepreneurs came through the informal sector or small-scale enterprises where they learned skills by doing. They were individuals with the attributes of entrepreneurs minus the necessary training.
Several of the SMEs owners throughout the developing countries do not have formal education beyond high school. Whatever education they receive usually had no relevance to entrepreneurial education.
At the elementary and secondary schools, they are drilled with basic mathematics, social sciences and natural sciences. Even the college course on business in many African countries tends to be highly theoretical in both context and presentations, far removed from the day to day realities of managing an enterprise where managers are required to make decisions in such areas as pricing, product mix, distribution, purchasing and investments. etc…
This realty also holds true to the Eritrean experience after independence. Although Eritrean entrepreneurs were ready to equip themselves with the desired appropriate knowledge, technology and skills for active engagement in the global business environment, their attitudes alone were not sufficient in guiding their endeavours in reaching higher levels of participation both in domestic and international business operations.
Labor shortage affects firms’ ability to grow and become competitive, not only in the regional or international marketplace but also their performance in the domestic market. Due to the severe shortage of labor that followed the renewed war with Ethiopia in 1998, firms were relatively less productive in Eritrea.
The ratio of capital to labor was much higher than the optimal ratio, and wages rose effectively. When coupled with other constraints the labor shortage created a severe drag on competitiveness in the private sector. The sudden and total mobilization has deprived the private sector of a large segment of its skilled workforce and negatively affected the quality of overall management and performance.
Another element constraining entrepreneurial development is lack of availability of capital and credit which constitute a major force inhibiting entrepreneurial development in developing countries which usually lack financial power. Properly set financial institutions whose objectives are to encourage the small and medium size entrepreneurs who always happen to be handicapped in raising resources are sometimes a luxury despite being a necessity in many developing countries.
The government of Eritrea did the best it can to fill this gap after independence. However the burden was beyond reproach as the new government started with empty hands the cumbersome task of rebuilding a devastated economy and infrastructure.
The development, promotion and encouragement of domestic private capital is vital for the accelerated growth of small, medium and large industrial enterprises.
There is a strong need for domestic saving by Eritreans and the monetary and banking system should come up with measures that encourage and reward saving. A trader’s success is dependent upon establishing ease of access to the credit lines. Credit facilities at reasonable rates, especially for long term purposes, is an essential task for the government in the absence of adequate credit supply from the private sources.
The development of entrepreneurs may depend largely on economic incentives which are determined by government policy regarding foreign exchange, licensing and factors of production facilities and price controls. Besides entrepreneurship and eventually industrialization depends on government funds in terms of loans or government sponsorship such as the ability to obtain foreign technical assistance pro-grams. Credit facilities provided at reasonable rates, especially for long range purposes, is also generally a task for government agencies in the absence of credit supply from private sources at this stage in Eritrea.
The truth however remains that, entrepreneurs have always been a minority and they did not have the means and sometimes the chance to prepare a favorable setting for their own activities. Such a set¬ting may include the legal and regulatory system of government, the promotion of education, the strengthening of the financial sector, the exposure and absorption to new technology, and improvement in the economic system.