Entrepreneurship can promote economic growth, even if its benefits are sometimes overhyped. Entrepreneurship is often cited as a major engine of economic growth in many countries of the world. But the actual picture is more complicated.
Entrepreneurship is frequently credited as a major driver of economic growth, spurring transformation, the creation of new markets, innovation, and building wealth. Entrepreneurs are often key to developing ideas and solutions to problems while creating new products.
Cognizant of this fact, The Ethiopian Herald had a stay with Dereje Bekele, an economist graduated from Addis Ababa University, to seek some sorts of information about the significance of entrepreneurship in due course of supporting the economic growth.
He said, “Entrepreneurship or the activity of starting and running a business is a vital ingredient of economic growth and development. Entrepreneurs contribute to innovation, and they are central to dynamic socio-economic competition and broader economic dynamism.
Yes, entrepreneurship has had a firm link with economic growth, and it is found that particularly opportunity-driven entrepreneurship is positively linked with growth. Intuitively, big technological advances in the manufacturing sector create a lot of opportunities for innovative entrepreneurs whereas other entrepreneurs gradually adapt to the slower pace of technological progress in the services sector, he opined.
He said, “An increase in opportunity-driven entrepreneurship activity rate from the mean level of the developing economies to the mean level of advanced economies, together with a standard deviation increase in the share of manufacturing’s value-added in GDP,” he added.
As to Dereje, entrepreneurship, or the activity of starting and running a business, is a vital ingredient of economic growth and development. Entrepreneurs contribute greatly to innovation. Innovative entrepreneurs are the principal agents of the new products, services, technologies, firms, and industries replacing existing products, services, technologies, firms, and industries. The contribution of entrepreneurship to the economy should not be confined to transformational entrepreneurs.
Entrepreneurs are adept at commercializing new technology into products and services that are useful for consumers. The distinction between everyday entrepreneurs and innovative entrepreneurs is not always clear-cut. For instance, creative street food vendors who invent uniquely delicious dishes become influential restaurateurs. Nevertheless, a relatively small group of highly productive entrepreneurs account for the lion’s share of entrepreneurship’s contribution to the economy. The vital role of entrepreneurship in economic growth and development, combined with its neglect in economic research, is a powerful motive for delving into entrepreneurship in developing Africa, Ethiopia. Entrepreneurship holds the key to the emergence and development of a vibrant private sector, an indispensable ingredient of sustained growth.
He said, “The advent of digital entrepreneurship in recent years means that now is an especially opportune time to analyze why individuals start new businesses. Information and communication technology (ICT), or digital technology, has drastically reduced the cost of starting a business since it reduces the need for brick-and-mortar stores and other physical facilities.”
However, good digital infrastructure alone does not automatically invigorate entrepreneurship. To become an entrepreneur or not is fundamentally an individual decision. Talented individuals who become game changing innovative entrepreneurs have plenty of opportunities as highly paid workers, he underscored.
As to Dereje, the enabling entrepreneurial ecosystem is constantly evolving. In recent years, organizational innovations such as venture accelerators and crowd funding improved the entrepreneurial climate. Entrepreneurship is a source of innovation and change, and as such spurs improvements in productivity and economic competitiveness. Entrepreneurship is closely associated with knowledge and flexibility, two factors that have gained new significance as a source of competitiveness in an increasingly globalized world economy.
As to him, the entrepreneur has been a fundamental agent in most production, distribution and growth theories. The firm of the innovative entrepreneur will, consequently, grow through the dual process of taking market share from existing suppliers and increasing overall demand for the products offered in the market.
He further elucidated that the greatest significance of entrepreneurship is to help identify and develop the managerial capacities of entrepreneurs. Obviously, entrepreneurship promotes economic growth, provides access to goods and services, and improves the overall standard of living. Many entrepreneurs also make a positive impact on their communities and improve their well-being by catering to underserved areas and developing environment-friendly products.
Entrepreneur is recurrently credited as major driver of economic growth, spurring transformation, the creation of new markets, innovation, and building wealth. Entrepreneurs are often key to developing ideas and solutions to problems while creating new products, he added.
According to Dereje, entrepreneurship helps improve the per capita income of a country by generating new job opportunities. It plays a significant role in increasing Gross National Product. The concept of entrepreneurship encompasses actions undertaken by both established enterprises and emerging businesses. Traditionally, entrepreneurship is categorized into four main types; small businesses, scalable startups, large companies and social entrepreneurs. Entrepreneurship is the process of starting and managing a business, usually to introduce a new product or service to the market:
He further said that entrepreneurs look for new business opportunities and act on them, develop a plan, create a business structure, hire staff, and develop strategies for financing and marketing, and entrepreneurship involves risk-taking and decision-making, driving innovation.
Unquestionably, entrepreneurs are innovators who create new products, services, or business models for solving problems and contributing to society by boosting wealth and employment. They are often characterized by creativity, resilience, and a problem-solving mindset. They are also leaders who have the freedom to build the company, products, and team culture they want, he underscored.
“Entrepreneurship can start as a small business, but the goal is to capture market share and seek high profits. Entrepreneurship is a general, blanket term related to starting a business, but its precise definition has long been a matter of debate among scholars and policymakers,” he added.
An aspiring entrepreneur actively seeks a particular business venture and it is the entrepreneur who assumes the greatest amount of risk associated with the project with a view to benefitting most if the project is a success, he added.
Responding to the question imposed to him stating, ‘How do entrepreneurs fuel economic growth?’ Dereje stated that innovation and entrepreneurship undeniably contribute to economic growth, making them a particular area of interest for economists and policymakers everywhere. For one thing, growth from entrepreneurial activity doesn’t occur evenly across an economy.
He further elucidated that one interesting way to look at entrepreneurship is to divide it into two broad categories: necessity entrepreneurship and opportunity entrepreneurship. The former is the launching of a business by people who lack other opportunities, and the latter is the creation of an enterprise in response to a new or previously overlooked opportunity.
Citing the sayings of scholars, Dereje stated that in countries where entrepreneurial activity is largely in the form of necessity entrepreneurship, it can be a signal that the economy isn’t creating enough jobs or wage opportunities for workers. It may be connected to slow economic growth or lagging economic development overall. As for him, necessity entrepreneurship can also be a side hustle for someone who is trying to make ends meet or a way to meet their non-economic needs and goals.
The level of economic development of a country can also affect whether entrepreneurship will lead to greater economic growth there. In the 20th century, driven by the decline in manufacturing and the shift toward service businesses, industrialized market economies in later stages of economic development—those countries saw a rise in entrepreneurship, which reversed the previous trend in their economies.
Dereje exhorted his idea, stating that businesses in general focus on existing products and services, while entrepreneurs look to introduce new ones. However, small business owners can be entrepreneurial in their own way, and entrepreneurs may end up as small business owners if their idea catches on. An entrepreneur is someone who works within a larger company; typically they don’t own it, perhaps, to foster entrepreneurial ideas and innovation. Definitely, entrepreneurship can be a good source of economic growth, and entrepreneurs often have access to greater resources than independent entrepreneurs without a company behind them.
BY MENGESHA AMARE
THE ETHIOPIAN HERALD SUNDAY EDITION 24 NOVEMBER 2024
