Stifling the next big thing

26 Mar, 2017 - 00:03 0 Views

The Sunday Mail

Chris Chenga Open Economy
When our governments retain steep debt burdens there is greater sensitivity to capital allocation in an economy, and more effecting than simply age demographics, capital allocation has a greater significance to industrial disruption.

In the realm of entrepreneurship, disruption has become the ultimate buzz word.

Disruption is interpreted as being an innovative means of product or service offering to a market, in a manner that shifts the entire dynamics of a respective industry.

On a continent expecting significant youth dividend at a time when technology seems to be evolving at a quicker pace than any time before in history, African youth are often looked upon as the major source of industrial disruption.

These are far exaggerated expectations.

The notion that demographic distribution puts Africa a foot ahead in the likelihood of industrial innovation and creativity is much more romanticised that it is structurally posed to turn out to have a realistic chance of being so.

Factually, at a macro-economic level, disruption and entrepreneurial diligence are not necessary leveraged on a youth dividend.

This is a notion held by superficial policymakers, often times lacking the economic literacy to realise the structural deficiencies that have stunted youth economic progression in developing economies.

It has become a statement used as motivational consolation to victims of stifled economic space.

Contrary to popular narratives about young, especially technology-savvy entrepreneurs, the median age for innovators in developed economies is 47.

Furthermore, up to 80 percent of innovators possess at least one advanced degree, and 55 percent have attained a PhD in a STEM subject.

So why then is innovation advanced as a youth expectation in our developing economies?

Clearly in a desirable economic structure such as those in developed economies, innovation goes beyond age demographics. Perhaps a more accurate determinant of entrepreneurial, let alone disruptive, potential is the low propensity of capital formation in an economy.

This would better explain why African economies lack comparable rates of industrial disruption to developed economies.

Consideration must begin at the level of national debt that burdens many African countries.

Ghana, Nigeria, Zambia, and Zimbabwe, with debt-to-GDP ratios of more than 75 percent face insurmountable debt burdens that structurally contract space for expansive industrial disruption.

When our governments retain steep debt burdens there is greater sensitivity to capital allocation in an economy, and more effecting than simply age demographics, capital allocation has a greater significance to industrial disruption.

When an economy has debt, capital allocation first and foremost will find its way towards state determined strategic industry.

For instance, Zimbabwe’s budgetary allocations have to be focused on developmental agencies such as Agribank, IDBZ and State enterprises.

Due to limited capital availability, most funding in the economy is centralised.

Further capital is also taken up by Treasury bonds that are sold to the market so as to support governmental allocations.

Indeed then, the trend of capital allocation in Africa is one of a recurring battle to sustain developmental expedience and fundamental service delivery and infrastructure.

It is cyclical Ferris wheel which our debt burdened governments remain entrapped in. Consequently, our economies lack adequate capital to allocate into the real economy.

In Zimbabwe’s case, while it is true that opportunity comes from challenges, we must not perceive entrepreneurship and disruption in an economy full of market failures and distortions.

This is a perspective that we should end sooner rather than later as we are grooming innovators in market opportunism, not innovators of industrial disruptors.

We should distinguish the two.

When our debt-burdened Government struggles to reform strategic State enterprises, many sectors remain exposed to market failures and distortions.

This creates short-term opportunities such as arbitrage, marginal trading and the “entrepreneurial” practices of capitalising on inefficiencies that resemble market opportunism.

Contrarily, if Government was not debt-burdened and State enterprises excelled in closing out market failures and distortions, entrepreneurial ventures would then be focused at the cutting edge of efficiency and market competitiveness.

This is where you find innovators of industrial disruption!

Perhaps scientifically unproven, it may not be a far off suggestion that as Zimbabwe loses close to $1 billion a year due to market failures and distortions, the entrepreneurial scope for returns in our economy may then be capped to that figure.

More simply, I am posing the suggestion that so-called entrepreneurs in Zimbabwe are operating in an economy worth billions of US dollars of opportunities every year.

If the burdens on debt which constrain our capital allocation were to be notably eased, as well as state enterprises decrease market failures and distortions, perhaps then innovative industrial disruptors would unlock greater annual economic returns.

I will conclude with a comparative example. In the developed world, when conducting strategic planning, under a typical SWOT analysis, companies mention already existent competitors.

For instance, AT&T would study Verizon, Sprint and BOOST Mobile. However, the company will go as far as including a yet to be conceived competitor in its analysis.

The implication being that in a well-capitalised market operating at a high level of efficiency and competition, entrepreneurship is not only about entities that already exist — it is also about competing with entities that do not necessarily exist yet, but can pop up at any moment of disruption.

In Africa, capital deprived economies have already existent players with the comfort of knowing that the likelihood of new well capitalised entrants of significance is minimal.

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