Tue | Aug 22, 2017

Andre Poyser: Will increased entrepreneurship deliver growth?

Published:Sunday | May 8, 2016 | 5:00 AMAndre Poyser

The increase in entrepreneurial activity in Jamaica has been chronicled in successive versions of the Global Entrepreneurship Monitor (GEM) report, a publication which compares data on entrepreneurship from several countries. A unique data set highlighted by the report is the Total Early Stage Entrepreneurial Activity (TEA), which captures the number of new businesses started over a particular period of time.

Over 15 years of doing the study, the TEA of less-developed countries, such as Jamaica, has consistently exceeded that of more developed economies.

This curious finding goes against a common logic that would predict that more developed countries, innovation-driven countries as the report terms them, would have a greater propensity for entrepreneurial activity.

The national report done for Jamaica in the 2011 GEM study reveals that Jamaica's 'entrepreneurial intentions' rate was nearly twice as high as that for innovation-driven economies. Similarly, the 'perceived opportunities' and 'perceived capabilities' rates continue to exceed those of the more developed countries. Given that Jamaica is considered by many as having a poor business environment that is not conducive to entrepreneurial activity, despite improved rankings on the World Bank's Doing Business Report, it is instructive to look more closely at the motivating factors informing the entrepreneurial pursuits of Jamaicans.

Venture capitalist David Mullings is of the view that entrepreneurship has nothing to do with the overall business environment, ease of doing business, or even access to capital. He believes it primarily derives from the need for income in order to survive and that countries with high unemployment, especially among college graduates, leave them with no choice but to become entrepreneurs.

 

LACK OF OPPORTUNITIES

 

Discussion at a recent Gleaner Editors' Forum echoed Mullings' sentiments, highlighting that lack of opportunities has resulted in more young people wanting to start their own business. This, of course, should be good news for Jamaica's economic prospects, but we should not get too excited as yet, because this type of necessity-driven entrepreneurship has been proven to lack sustainability and does not translate to improved economic growth as one would expect from an increase in entrepreneurial activity.

It is opportunity-driven entrepreneurship that is the driver of business and economic growth, and this is borne out by the research. The results of a study conducted by the Faculty of Entrepreneurship at Tehran University have shown that the relationship between necessity-driven entrepreneurship and both business growth and business growth expectations is negative, while the relationship between opportunity-driven entrepreneurship and both business growth and business growth expectation is positive.

More times than not, opportunity entrepreneurs start businesses voluntarily and usually in their area of expertise. As such, they may be better prepared for their entry into self-employment and have higher chances of survival. Additionally, opportunity entrepreneurs tend to be more motivated by non-monetary rewards than necessity entrepreneurs. This explains why so many businesses in Jamaica do not pass the TEA stage of business and often give up if the business does not make money in the short term.

According to successive GEM reports, TEA in Jamaica rarely translates into late-stage entrepreneurial activity and sustained business growth. This is evident in the high rate of business failure in Jamaica. Entrepreneurial ideas are aplenty, but the resources, know-how and the wherewithal to achieve sustained business growth are severely lacking. While the value of the entrepreneurial spirit should be lauded, entrepreneurship that exists just for the sake of making a quick buck has implications for the levels of economic growth and productivity that Jamaica experiences.

 

POSITIVE DEVELOPMENT

 

That the entrepreneurial appetite of Jamaicans has been opened is indeed a positive development, but the motivation behind this high level of entrepreneurial intention does not augur well for economic growth. Several studies have indicated that an owner's motivation for starting and running a business affect the growth of their firms. A business that has been set up to exploit an opportunity in the market is expected to have a higher propensity to grow than a business for which the main drivers are push factors such as unemployment, dissatisfaction with present employment, or personal lifestyle reasons.

The Government, in its thrust for economic growth and prosperity, should not be sidetracked by the high level of entrepreneurial intentions but should focus on continuing the critical reforms that create the environment in which market opportunities can be exploited.

- Andre Poyser is a journalist. Email feedback to columns@gleanerjm.com.