"Not-so-reluctant entrepreneurs" and other encouraging facts about economic growth in Africa

One of the best parts of Banerjee and Duflo’s Poor Economics is a chapter on “reluctant entrepreneurs” – people who own and manage their own businesses not because they want to, but because it’s the only source of income available to them. It’s a concept that ties together a lot of what we know about poverty alleviation and small enterprises in the developing world. Part of why microcredit and business training don’t achieve huge gains in lifting people out of poverty because the business-owners targeted by those policies aren’t passionate about growing their businesses. They’re just trying to get by.

This view of small businesses in Africa is challenged somewhat by a new NBER working paper by Diao and McMillan (“Toward an Understanding of Economic Growth in Africa: A Re-Interpretation of the Lewis Model”, ungated IFPRI working paper here). They cite a survey of small businesses in Tanzania that found that 54% of small business owners would not prefer a salaried job. That 54% is the exact opposite of a reluctant entrepreneur – they enjoy running their own business. A surprising 60% of all these businesses are growing, too, which is consistent with people enjoying running them.

The paper has many other interesting and encouraging datapoints – Angola, famous for being the leader of Africa’s growth boom, has faster growth in its agriculture sector than its mining sector.* Moreover, manufacturing is growing as a share of all exports. Both factors argue against the standard narrative that this is another export boom that won’t lead to broad-based economic development. The authors also argue that the current economic growth is led by domestic demand and accompanied by growth in the “in-between” sector – their word for the set of small businesses that includes “reluctant entrepreneurs”.

I was a lot less interested by their GE model of Rwanda’s economy – but the assemblage of data on Africa’s economic growth makes the paper worth reading in its own right. I have argued before that it is time for optimism about Africa, and now I feel even more confident about that.

*Bearing in mind the often-dubious quality of African GDP statistics.