COMMON WISDOM #15: Non-farm enterprises in rural Africa are often operated due to economic necessity and survival. Consequently they tend to have low-productivity levels, do not create many jobs, and do not drive structural transformation in Africa.
SCORE: 3 - Factish
- Forty-two percent of rural households operate a nonfarm enterprise, contributing between 8% (Malawi) and 36 percent (Niger) of average household income
- Most of these enterprises are informal, operate only seasonally, and create few jobs
- Many perform poorly, but a few perform very well. Enterprises operated by younger people, women, and those further away from urban centers are less productive, as are those operated in response to a shock (drought, flood, illness).
- Households are pushed into operating a nonfarm enterprise when they have difficulty coping with shocks or dealing with agricultural seasonality, or when household members need employment. Much heterogeneity exists across countries in the extent and frequency of these determinants, and many enterprises are not operational throughout the year (see figure).
- Positive business opportunities—particularly for households living closer to denser markets—often lead rural households to operate enterprises. The better educated and those who can obtain credit are more likely to start businesses, suggesting that access to human and physical capital matters.
- Lack of profitability or financing, as well as idiosyncratic shocks such as illness or death, can cause rural enterprises to cease operations.
The study generally confirms the common perception that Africa’s rural household enterprises operate largely in survival mode, although a small portion of them are highly productive.
The paper suggests policies that improve the business environment, that assist households in rural areas to manage and cope with risk, and that strengthen the capabilities of individuals to be entrepreneurial. It also recommends improvements in data collection on rural enterprises.