The Concept of Entrepreneurship in Economic Development


By: Site Engineer, Staff

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Brief Conceptual Background and Definition of Entrepreneurship

There is a growing recognition that the private sector must now play a greater role in African development. Particularly the role of indigenous entrepreneurship is likely to be much more important in small businesses than in the large undertakings that were generally favored by African planners in the past.

Many large businesses have not been profitable and economically efficient because of a lack of managerial capabilities and skills necessary for complex undertakings. Hence, they have had to rely on substantial subsidies, protection, and other government assistance.

Therefore, a change of policy that provides greater opportunities for a small business run by Africans is more likely to increase than to reduce the rate of growth of industrial output.

There is no consensus on whether or not a particular country is well endowed describe a capacity to innovate, or whether it refers to the ability to run a large and complicated manufacturing operation.

The earliest usage of the term “entrepreneur” is recorded in the 1st Century French Military history preferred to the person who undertakes to lead military expeditions. The term was later used to refer to contractors handling government projects.

In 18th century Irish man named Richard Cantillion who was leaving in France at that time is credited with being the first to use the term “entrepreneur” in business context as “someone who buys goods and services at certain prices with a view to selling them at uncertain prices in future, in order words bearing an unmeasured risk”.

A decade or so later Jean Baptiste (1803) described entrepreneurial functions in broader terms emphasizing “the bringing together of the factors of production with the provision of management and the bearing of the risks associated with the grander role and cast the entrepreneur as being the actor in the process of change”.

He contended that the single most important function of an entrepreneur was innovation. An entrepreneur can, therefore, be defined as an “action-oriented and highly motivated individual who can see and evaluate business opportunities to gather the necessary resources to take advantage of them to initiate appropriate action to ensure success and to take the risk to achieve the goals”.

The role he performs to achieve the above is called entrepreneurial function and the process is called entrepreneurship.

Entrepreneurship has three essential and linked attributes:

  • First the ability to perceived profitable business opportunities.
  • Second a willingness to act on what is perceived.
  • Thirdly, the necessary organizing skill associated with a project.

Soji Olokoyo defined the concept of entrepreneurship as “the willingness and ability of an individual or group of persons to search for investment opportunities, establish and run a business unit successfully”.

Entrepreneurship as a concept has a lot to do with how several activities are carried out in an organization for effective operations among which include the following:

  • Assuming the risks of different dimensions.
  • Deciding on the form of business organization, and establish the enterprises by giving it adequate promotion and support it may require.
  • Giving the enterprise the desired focus through good leadership, assignment of tasks, the motivation of employees, coordination, and monitoring, etc.
  • Identifying business opportunities.
  • Choosing business opportunities.
  • Selecting and blending of the enterprise resources for maxima utilization both for production and distribution purposes.

Factors Determining the Extent of Entrepreneurship  

There are very many divergent but agreeable views among social scientists as to what determines the extent of entrepreneurship in a given society.

Hence, we have sociological, psychological and economic factors.

Sociological Factors

By the sociologist, this view thinks that society’s values and status hierarchy govern entrepreneurship. They analyzed the characteristics of entrepreneurs in terms of caste, family, social status, value system and so on.

It is believed that entrepreneurship will flourish in a society where status movement in society is dependent on hard work, initiative, and good performance. On the other hand, entrepreneurship will be discouraged in societies where status movement is based on sycophancy.

Psychological Factors

Advocated by the psychologist who attempts to isolate entrepreneurs from the general population on various personality traits such as the need for achievement, creativity, independence, etc. hence the extent of entrepreneurship in a given society will be determined by the number of people who possess entrepreneur traits.

Economic Factors

By the architect, economic factor simply the structures and level of economic incentives, that is profitable investment opportunities that are found in the economic and marketing environment as relevant to the development of entrepreneurship which will flourish in societies where adequate profit or compensations is resulting from the performance of entrepreneurial functions.

This view goes hand-in-hand with the managerial perspective, which focuses on managerial skills, which enable a person to exploit the economic opportunity in the environment and obtain economic gains.

The Need for Entrepreneurship Skill Development Programmes

With the diminishing opportunities for formal employment educational institutions are being encouraged to provide relevant forms of education designed to promote self-reliance and responsible entrepreneurial capacity for self-employment.

Education systems are meeting these challenges through several ways in which Entrepreneurial Skills Development Programmes (ESDPs) is one of such ways.

ESDP is defined as any comprehensively planned effort undertaken by an individual group of individuals and/or institutions/agencies to develop competencies in people that are intended to lead to self-employment or economic self-sufficiency or employment generation through education and/ or short term training.

ESDP focuses on the development of entrepreneurial skills, which include:

  • Managerial capabilities to run the business or other self-employment activity successfully.
  • Development of an entrepreneur spirit characteristics and personality.
  • Development of technical technological and other professional competence needed for productive work and employment.
  • Development of enterprise building and small business development capabilities to initiate and start one’s own business or be self-employed.

Since ESDP aimed at developing all four categories of skills, therefore, the result is more likely to be new enterprise development, self-employment, increased business activity and more employment in a given country.

In most Commonwealth countries Nigeria inclusive, initiatives on ESDP’s are taken in a context of persistent unemployment, especially among youth. It is seen in a desire to promote a strand of education/training that is more closely linked to job creation and self-employment.

In a large number of Commonwealth countries such as Nigeria, the main purpose of this national/local government initiative is usual to reduce youth unemployment through appropriate education/training and other complementary measures which would hopefully foster self-employment.

Additionally, this initiative includes a desire to establish an enterprise culture (like in Britain) a need to assist disadvantaged sections of the populations (e.g., ethnic minorities) the need to develop alternatives to a stagnating formal sector economy and a desire to reduce national dependence on import and foreign-owned enterprises.

Many aid agencies are giving increased attention to strategies for promoting self-employment opportunities particularly in developing countries of the commonwealth.

Sometimes this comes from a desire to assist disadvantaged groups in the society (rural poor minority groups, peasant women, etc); in other circumstances promoting self-employment opportunities is regarded as a necessary mitigation strategy to complement structural adjustment policies which result in retrenchment and increased unemployment in public sector.

There is also a more general concern with problems relating to underutilized human resources and economic decline, resulting from a lack of employment opportunities in the formal economy.

The Significance of Entrepreneurship to Economic Development

Trainees are prepared to be job creators and not job seekers hence the course is aimed at providing the trainees with adequate knowledge on how to set up his/her small enterprise for self-employment.

Small businesses have been described as the most promising vehicle of entrepreneur dynamism in Africa. The history of indigenous business in Africa is the history of small-scale enterprises. Small independent businesses are everywhere and in every line of work. We see them in every community. The local corner drug store, barbers shop, roadside mechanic workshop and many more are all regarded as small-scale enterprises.

Generally, surveys in developing and developed countries, however, confirmed that small-scale enterprises have great potential for the generation of employment opportunities enhancing the effective mobilization of capital and ensuring a more equitable distribution of income while promoting economic growth.

They are sometimes described as the engine of economic growth in most economies of the world. They also enable individual entrepreneurs to become self-reliant and can do their things in their way.

They promote creativity among business owners and their existence broadens the sources of revenue generation for the governments most especially at the local government level. They complement the services rendered on products offered by the medium and large-scale businesses.

Small businesses are easily found everywhere but more in those areas which the big ventures refused to penetrate and thereby meet the needs of their local communities more satisfactorily. They sometimes provide inputs for the use of material components (labor/supply).

They enable individual business owners to earn additional incomes, more so if they are also government-employed persons. Their operations help to reduce rural-urban migration of young graduates and the jobless ones.

They promote the development of cottage industries and local technology in the local communities. Various researchers have documented the contributions that small-scale industries in Africa have made to the African economy.

A report has estimated that 70% of industrial labor was employed in the small-scale industries. Another report has pointed out that the industrial sector of Nigeria’s economy engages about 20% of the economically active population and about 70% of those are in the small and medium-scale industries. Federal Office of Statistics (FOS) report puts the contribution of small-scale industries in manufacturing at about 0.55% of GDP per year during the 1973 to 1984 period (FOS 1984).

The report also went on to state that small-scale industries contributed 12.5% to the aggregate contribution of the manufacturing industries between 1973 and 1984 in terms of value-added. It has been found that the value-added to gross output is higher in small-scale industries than in large-scale industries reflecting a higher degree of raw material processing contrasting with the “finishing touches” processing common in the large-scale industry (NISER 1987).

Output per capita was also found to be lower in small-scale industries than in large-scale industries. It has been shown that between 1973 and 1984 output per person in food manufacturing industries was 42,142 for small-scale industries while that of the large-scale industries was 45,566.

In the case of textile output per person was 46,902 in small-scale industries and 28,909 for large-scale industries. The lower output per capita ratio for small-scale industries probably reflected the labor-intensive methods employed by the small-scale industries.

The implication of the lower output per capita ratio in small-scale industries is that they promote employment while large-scale industries generate unemployment.


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