Innovation Youth Essay Winners

Social Transformations: The Role of Entrepreneurs in Building Democratic Societies by Todor Raykov

Article at a glance

  • Following the difficult transition from communism to democracy, entrepreneurship is the most promising way to revive Bulgaria’s faltering economy.
  • In Bulgaria, there is a negative connotation for entrepreneurship as many of the communist elite transformed into corrupt “entrepreneurs” post-transition. Additionally, Bulgaria faces high levels of “brain drain.” However, in recent years, the Bulgarian government has been trying to inspire a new wave of entrepreneurship with little success.
  • In order to combat these problems, Bulgarian youth need better education along with with better job opportunities and a more welcoming environment for entrepreneurs.

Introduction

To Flee or WHEN to Flee?

This is not a badly misquoted phrase from a soliloquy written by an illustrious playwright. Nor is it a question in the heads of refugees fighting their way out of a danger zone. It is just the question that the majority of young people, living in a European and seemingly democratic country, ask themselves everyday. This is the story of the Bulgarian youth in its final attempt to either transform its struggling country for good, or emigrate to another corner of the world in search of a better lot. This is also my story.

The Transition to Democracy and Our Entrepreneurial Legacy

Born in Eastern Europe and raised in a dilapidated communist-era block of apartments, I had the chance to experience first hand the radical transition of my country from communism to democracy, and observe the dramatic transformation of the economy and its far-reaching effects on the very fabric of society. The rapid enrichment of certain economic and political elites, at the expense of the mass of the population in my home country, inspired me to study politics and look for the causes of our national misfortune. Gradually, I found myself researching the history of the pre-Communist era and perusing books about famous businesspeople and politicians from the turn of the 20th century.

Before the Communist Regime, Bulgaria was renowned in the region for its affluent merchants and high-quality goods. Some of these entrepreneurs turned out to be the greatest benefactors of culture and education in the country. In fact, the oldest and most significant university in Bulgaria, Sofia University, from which I had the privilege to graduate, has been built almost entirely through the donations of two famous Bulgarian merchants. The contrast between their achievements and magnanimity, and the misery and constant economic crisis in Bulgaria during the 1990s was astounding. Astounded by the zeal, intelligence, farsightedness, and munificence of the majority of these eminent figures, I decided to immerse myself into the field of entrepreneurship and business creation as the most promising way to revive my homeland.

The New Apostles of Entrepreneurship

“We are here to make a dent in the universe. Otherwise, why even be here?” This quote, attributed to Apple’s Steve Jobs, perfectly illustrates the mindset that young entrepreneurs and non-governmental leaders need in order to alter their societies for the better. Unfortunately, 45 years under a communist regime stripped away the entrepreneurial spirit from the majority of my fellow countrymen. Many of those who possessed the initiative to start their own businesses fled abroad as soon as the Iron Curtain fell. Others remained in the country and headed powerful corporations. Eventually, it came to light that almost all of the latter were the offspring of the communist elite. They had received their education abroad, primarily in the USSR, but also in the best and most expensive business schools of Western countries, while the double-faced regime publicly designated those same countries as “decadent and corrupt.” The clique of privileged students managed to pay for their education exclusively through the financial support of the Bulgarian Communist Party (BCP). Not surprisingly, during the transition from communism to democracy, this same group of people took over and embezzled from the state-owned companies. As one Bulgarian joke goes, the former communists went to sleep one night and the next day woke up as capitalists.

All of this instilled deep revulsion in the regular Bulgarians towards entrepreneurs and business people. Even now, 23 years after the fall of communism in Bulgaria, it is still considered almost impossible for one to become a successful entrepreneur, unless he or she has a substantial political backing. In this milieu of widespread skepticism, the sole idea of youth entrepreneurship often sounds incongruous and provokes suspicion in the minds of the older generation. Therefore, it is still a rarity for a young person reared in the first years after the fall of communism to have entrepreneurial aspirations at all. Most shockingly, those youths who dare to found new companies and fight their way past the plague of nepotism and cumbersome administration are generally mocked and pitied by society for their “youthful stupidity.”

Lately, some Bulgarian politicians proposed the establishment of IT and business parks in an attempt to create a “Bulgarian Silicon Valley.” Although this is a step towards the right direction, I believe that even the efforts of the Bulgarian government and the European Commission to incite private initiatives and to create business hubs through the infusion of billions of Euros into the economy will inevitably prove futile. One cannot just build another Silicon Valley or another New York City because these names mean something more than a simple amalgamation of concrete, steel and money. They symbolize passion, ambition, and, most importantly, entrepreneurial spirit. This kind of mentality cannot be created overnight. It has to be ignited in the individuals themselves and further supported and fostered by educational centers and business associations.

Despite the global recession and economic crisis, during the past five years several small groups of ambitious and aspiring young Bulgarians established youth organizations, determined to change the prejudices and stereotypes of the society and sow the seeds of a new generation of entrepreneurs. Coming from different backgrounds, these budding entrepreneurs, most of whom are also nongovernmental leaders, share a common goal: to move our economy to a faster track. Their passion and sincere desire to alter our society and to leave a lasting mark on the country ranks them alongside the famous merchants of the past as true apostles of entrepreneurship. While facing pressing challenges, they also offer adequate solutions to our acute national problems, the most prominent of which are the demographic crisis and the stampede of young people out of the country.

Brain Drain and Little Gain

Bulgaria’s accession to the European Unio paved the way for thousands of bright and ambitious Bulgarians towards foreign companies and universities. The fact that most of these young people do not have the intention to return permanently to their home country in the foreseeable future makes this a perilous long-term issue. The reason for their exodus is understandable, when one compares the salaries of menial workers in Western Europe with those of scientists and highly qualified experts living in Bulgaria.

For example, while I am writing these lines, the Bulgarian government decided to stop funding the operations of the biggest astronomical observatory on the Balkan Peninsula. The scientists there are working in appalling conditions and are earning meager salaries. A job offer, published in the observatory’s website several months ago, triggered a national discussion on the need for a substantial increase in the remuneration of scientists. The observatory was looking for a junior expert with an college degree in physics, advanced skills in computer programming, and knowledge of two foreign languages. For all this, they offered a monthly salary of just 186 Euros. In a bitterly facetious manner, the astronomers concluded the offer with a quotation from Kurt Vonnegut’s book Welcome to the Monkey House, “You do not have to be crazy to work here, but it sure helps.” As a reference, a regular janitor in Bulgaria receives the same amount of money per month. At the same time, a custodian in the United Kingdom earns about 1,500 Euros monthly.

Because of discrepancies like this, many Bulgarians decide to emigrate permanently and provide subsistence for their families back home through remittances. In the meantime, the Bulgarian government does not take any measures to stem the outflow of qualified workers and young people. To me, a country and a government that does not look after the interests of its young people cannot be democratic. A more adequate description of the whole situation would be erratic. Nevertheless, our current political leaders boast of their efforts to build new roads and improve the infrastructure of the state. Christo Komarnitski, a popular cartoonist aptly depicted these myopic actions in a political cartoon.4 It shows the Bulgarian prime minister driving a truck full of bitumen for import passing another truck loaded with brains for export out of Bulgaria.

The words “brains” and “bitumen” sound similar in Bulgarian creating a facetious pun. This joke is a good illustration of the government’s ineptitude in providing opportunities for youth, a mistake that is now up to the youth to address. It appears that this generation of entrepreneurs and non-governmental leaders is loaded with the onerous burden of not only transforming the society, but also saving its country’s democracy, and even its demos.

Youth Initiatives for a Social Transformation

The medley of outrageous and shortsighted policies provoked one university professor to call for the construction of “highways for the mind” and for more funding for the educational system, rather than investing only in infrastructure projects.5 I believe, however, that this shifting of resources will not be sufficient for the improvement of our current situation. A better educational system is a necessity, but at this point it will surely intensify the outflow of well-educated young people from the country unless they receive the opportunity to realize their potential and fulfill their dreams in their home country.

hopes of addressing this problem, in the spring of 2009 I headed a group of young entrepreneurs in establishing an association, the Youth Association for Private Economic Enterprise, aimed at fostering entrepreneurship amongst the Bulgarian youth and at building bridges between the universities, the business sector, and the student community.6 This youth-led organization works under the auspices of one of the country’s union of employers’ associations, which allows it to secure internships for students and recent graduates in leading Bulgarian companies. Moreover, the association, primarily comprised of social scientists and lawyers, provides pro-bono legal and administrative assistance for young people who are willing to start their own companies. Through projects financed by the European Union, the organization strives to make the workforce in Bulgaria more competitive and efficient. All of these efforts are aimed at combating the protracted high levels of youth unemployment, while staunching the emigration of highly qualified young experts out of Bulgaria. This organization’s endeavors are supporting the growing number of young people interested in the topics of entrepreneurship and innovation, as well as to the increase of successful startups since 2009, in spite of the economic crisis.

Another youth organization, Here-There/Tuk- Tam Foundation, is targeted at Bulgarians who have received education and work experience abroad.8 It was established in the spring of 2008 and its founders come from a variety of international universities and fields of study. Their main goal is to organize career fairs for students returning from abroad. The organization relies heavily on the fact that the veritable exodus of young Bulgarians, triggered by the economic discrepancies here and abroad, was mildly soothed by the global economic crisis. The tight labor market in Western Europe compelled many well educated Bulgarians to return to their home country and establish their own companies or start searching for jobs. At its job fairs, the foundation invites leading foreign companies, interested in attracting and employing qualified and educated abroad young experts for their Bulgarian branches. This benefits both parties equally. On the one hand, the students are satisfied, because the companies provide them with bountiful salaries for the Bulgarian standards. On the other hand, these salaries constitute only a fraction of the cost the companies would otherwise have to pay for the same type of experts in Western countries. That way, the foundation plays a key role in harnessing and developing the country’s youth potential at home.

A third organization of young leaders and startups, StartUP Foundation, is engaged in the process of refurbishing Bulgaria’s computer industry and establishing the country as one of Europe’s main information and communications technology (ICT) centers.9 During the communist regime, the country was one of the biggest producers of computers in the Council for Mutual Economic Assistance (COMECON).10 In the years after the fall of communism, the computer industry in the country saw its demise, even though Bulgarian programmers and engineers continued to perform well on international competitions and Olympiads in Informatics11 and Mathematics.12 At the turn of the new millennia, many Western IT corporations began to outsource their operations in Bulgaria because of the country’s well-educated and skilled labor force.13 This rebooted the IT sector and sparked the proliferation of small and medium sized companies. Nowadays, many IT startups organize workshops and conferences similar to the world-renowned TED conferences, which serve as a meeting ground for Bulgarian IT companies. These events inspire new entrepreneurs to pursue their goals in our country. They are helped by the fact that in the modern digitized world the location of an IT company becomes increasingly irrelevant to its operations. Moreover, the startups receive support from seed and acceleration funds, such as LaunchHUB,14 and from experienced IT entrepreneurs. Therefore, the IT startup’s organization is instrumental for the consolidation of the IT sector and for the establishment of new companies.

Conclusion

Although the future of my homeland is surrounded by uncertainty, initiatives such as those mentioned above will gradually change the attitude of the population towards entrepreneurs, help stem the flood of emigration, and instill confidence in startups to work and develop their companies in Bulgaria. The social transformation is already happening but it requires continual efforts from startups and NGOs, as well as cognizance from the government and the society that the young entrepreneurs are those who can forge a brighter future for our country. Without this understanding, many enterprising young people will eventually abandon their efforts and leave for another country where they can accomplish their business goals more easily. As for me, I will never flee because I truly believe in the ability of Bulgaria’s youth to take destiny in their own hands and to make a dent.

Todor Raykov is a graduate student and a Fulbright scholar in the Master of Science in Innovation Management & Entrepreneurship Program at the Fox School of Business.

Entrepreneurship and Innovation: Beyond Technology by Natalia Korchagina

Article at a glance

  • In Russia, there are many challenges to startups, such as a resistance to embracing technological careers by young people and universities, a desire to turn a profit quickly, a fear of failure, and a lack of knowledge or confidence in startups both by potential entrepreneurs and the market.
  • Few young people translate their ideas to action because of risk mitigation, inexperience in innovation, and a cultural mindset in Russia to make do with what is provided, not rock the boat, and work for the collective (not private) good.
  • Russia needs an entrepreneur ecosystem made up of investors, press and education, and young people supporting each other in their work.

In college, I became fascinated with the phenomenon of a startup as a massive effort and commitment to changing the world by relieving a problem or making many people’s lives easier. What interested me most was the idea of a startup as an organizational culture phenomenon, the place where youthful energy is brewing, people are hardworking, not because their incentives depend on meeting and exceeding corporate goals, but because they bet everything on their baby, the product they are building. A startup as the place – be it a loft, a garage, or a founder’s apartment – where people are opinionated, self-transcendent, resilient, and willing to discover what works in their case rather than being initiated into an already established culture and way of doing business. But my fascination – and later research interest – did not originate through my exposure to the startup environment in my home country, Russia. It originated when I first read Inc. magazine online and Jason Fried’s and David Heinemeier Hansson’s book Rework and weblog, https://37signals.com/svn. The people I respect so much came from and worked in other countries.

So I started thinking about what challenges the development of the startup ecosystem in Russia, which is starting to get a boost now, and why young people choose the traditional corporate path. Are they, for some reason, intimidated to start their own enterprises? I set up a website, www.magazinereal. ru, publishing interviews with young entrepreneurs from different countries. I talked to founders from the United States, Israel, Europe, and Russia. The entrepreneurs from Russia, just like me, reported being influenced and inspired by what was happening in the United States: either through a trip, education in the US, or reading, they became sensitive to the fact that there are so many ideas that have not yet been implemented in the Russian market and fascinated with the American type of entrepreneurial culture. My reflection on these meetings and interviews sparked what has grown to be my academic research interest. I am still looking for the answers and will now discuss my thoughts in so far as they apply to the startup environment in my country of birth. In this essay I will focus on Internet startups, mostly consumer Internet, because this is the sector I know best.

Although there are things beyond technology, and technology is certainly not the core of every business, lack of affinity with it is a serious barrier to turning an idea into a product and promoting the idea on the Internet. Still, most young Russians today choose professions not associated with technology. A recent survey by the Russian National Center for Public Opinion Research has shown that the most frequently chosen professions are in banking, investment, medicine, building, and architecture [5]. Training in the professions at the leading edge of technology (e.g. computer simulation, machine learning) is especially hard to find, young people who choose such professions usually acquire them abroad – and stay abroad. There is no cross functionality in education: all my Russian friends who studied business do not know how to build a simple website, let alone software. They had no classes in coding or designing for usability at university. And finding a technical co-founder is not easy now because business students usually do not have access to technical circles. Even if they find a technical specialist, they are afraid that person will run away with the work and present it as exclusively theirs. To me, having business acumen and skills to build a product is an ideal combination because then you avoid the pitfall of being either an inventor who does not know what the market wants and how to make money out of what he/she has built or a business person who cannot find technical talent or discriminate between good and bad technical talent when making decisions regarding team composition.

Profit is another consideration that is limiting young entrepreneurs in turning their ideas into products. Eric Ries argues that although entrepreneurs might have sensed the opportunity, the initial business concept is wrong in many cases [3], which is why entrepreneurs might have to tweak and even completely change their business concept and the money-making mechanism behind it. The founders of the Russian startup company Podorozhniki said they started with altruistic intentions [6]. Later they realized they could actually make money on their app. This shows that sometimes it takes time to figure out the best way to monetize the product. I assume that many young entrepreneurs would not give their ideas a go because they see themselves as not being in a position to waste time experimenting, trying different business models. That is why many young people start very traditional businesses: the business model is obvious. But in most cases, young people do not even think about experimenting: the first failure is seen as a death sentence.

Entrepreneurial education and storytelling of the kind Eric Ries and Steve Blank introduced in the States is very much needed so that young people are not discouraged by first failures but see them as opportunities to learn. Young entrepreneurs, who have already made it, should publicly share their experiences and lessons learned at conferences, in books, magazines, and blogs. University business education should inform students about young Russian entrepreneurs and their projects, invite them to speak to the students as is done in Stanford University in the Entrepreneurial Thought Leaders Lecture Series.

In addition to theory, practice-oriented research should be given adequate attention at educational institutions. The assignments may be designed to stimulate students to “do a bit of fieldwork”. For example, students in some business programs in the Netherlands, where I studied my master’s degree, get an opportunity to start their own company with financial help from the university and continue with their enterprise after graduation. They can sometimes be mentored by professors and other faculty staff. Many universities have incubators where entrepreneurs might rent office space at a very cheap price and also get qualified mentorship. This type of study is essential to ensure young entrepreneurs both know how to launch a business, but also make is sustainable.

Another rationale for not pursuing ideas is that young people are afraid the market is not ready. In other words, there are not enough people interested and willing to pay. It is still common for Russians to pirate software instead of buying a license and people are reluctant to offer their credit card number to pay for an app or digital book. However, this situation has to change – and both consumers and companies relying on the Internet as a distribution channel can help it change. Arkady Moreynis, the founder of a famous Russian seed fund, noted in one of his presentations that many Russian entrepreneurs seeking financing said they envisioned their business model as selling advertising on their website. I suppose this answer is so common not because founders are not intelligent enough to think of another business model, but largely because they are aware of the pinchpenny consumer mindset when it comes to paying for an Internet application. However, startups that cannot rely on viral growth should charge from day one. The more startups doing that, the more reasonable the consumer will become. We as consumers should realize the importance of respecting intellectual property rights because pirating creates a huge drain in the revenue streams of innovative companies.

At the same time, more seed investors and business angels should provide the necessary financial resources and advice to motivate more young entrepreneurs to start. The press must also play a role: there is still no print publication exclusively profiling startups. There is no magazine like Inc. or Entrepreneur in Russia. Recently, a few websites profiling startups and Internet technologies have appeared. For example, Habrahabr (http://habrahabr. ru/), Hopes&Fears (http://www.hopesandfears. com/), a few communities on Vkontakte (the Russian social network), but many young people still do not know about them. Startup culture is new to Russia and has only started to develop, and of course, time has to pass. In my opinion, there should be a collaborative and simultaneous development of startups and supporting institutions (early stage investors, business angels, accelerators, incubators, press, educational institutions). The whole startup ecosystem has to emerge, which will have an effect on public awareness and expand markets for the products and services built by startups. Having said that, I would like to turn to what I see as an even more important issue: that of idea originality. Cloning is common: Biglion modeled Groupon, Travelrent – Airbnb, AlterGeo – Foursquare, Sapato – Zappos, etc [4]. I attribute this to risk mitigation (the idea has already been validated, though in a foreign market), enthusiasm to crack a technical challenge, and partly to a very recent emergence of Internet entrepreneurship in Russia. I very much like Baron’s [1] metaphor of opportunity recognition by entrepreneurs as the act of “connecting the dots” between changes in technology, society, government regulations, et cetera. Prior knowledge, the wealth of “information gathered through rich and varied life experience” is mentioned as one of the major factors helping to “connect the dots” (p. 105). Are young Russians immersed into contexts that allow them to gain “rich and varied life experience?”

Russia has relatively recently emerged as a market economy and entrepreneurship is still seen by many as bringing overseas goods to Russia. My parents and grandparents were raised in a different ideology: work a lifetime for the good of the state, have a family with kids before 25, be modest, and abstain from all non-conventional things. Not only were the values traditional, people were also used to getting things done with what they had. This mindset discouraged looking for and commercializing new opportunities. My peers and I were born in the USSR and we also lack critical thinking and the courage to look around, not to criticize, but to spot problems and create solutions.

Russia did not, and still does not, have those contexts that sparked some of the famous innovations. Soundcloud could not have been born in Russia because Russia did not have that DJ culture. Reddit could not have been born in Russia because Russians would consider going to a website to vote for news, memes, or YouTube videos a complete waste of time. Vimeo could not have been born in Russia because artistic independent video production is not well developed in Russia. However, this does not mean that Russia has no contexts ripe for innovation. These should be the contexts specific to Russian society and they are waiting to be discovered. For example, I interviewed a team building a tax filing application called Elba within one of the leading Russian software companies headquartered in my home city. While talking to small business owners, they discovered that these owners had a big problem: filing tax returns. They managed to solve this problem by building an intuitive online app. Another example is an iPhone application Tagbrand that lets people tag the brand of the clothes they’re wearing in the photos taken with mobile devices (the founder presented at TechCrunch Disrupt [2]). It could be developed in Russia because young Russians are very fashion conscious. This would not be the same for many other contexts; for example I studied in the Netherlands and young Dutch do not care which brands you wear. They prefer to look casual and approachable. As we can see, entrepreneurs must have their ear to the ground to really know what will succeed in their society.

The role of entrepreneurs is bigger than simply producing new products or services. They are also an important force of social renewal: starting from values and behaviors to initiating social change. In the example of Elba, the team of young people working on the product is fostering new ways of communication with the customers. They got rid of the corporate jargon and used simple and clear wording to increase user-friendliness, which was rare for Russia at that time. As Anton Shayahov told me in an interview, “[...] we talk normal language with users. I mean, we’re not trying to communicate in corporate style, make out that we’re very official; and they appreciate it.” Team members answer users’ questions on social networks, and once a month each developer serves a day in the call center communicating with users to get a better grasp on their problems. This is different from the usual company that is hard to connect with and is organized into departments with little functional overlap. Having access to corporate resources, they could simply buy a lot of advertising. Instead, they intuitively understood that customer education is needed for a new product to become trusted. They go a step further and help new users with advice such as which tax system to choose and how to incorporate a business. They started a small business blog and filmed YouTube videos, all part of the educational approach. Instead of following the traditional way of getting things done, they do not copy big companies. They try to find and invest in ways that work best for their particular type of product.

Another great example of entrepreneurs fostering change is LavkaLavka. The founder liked visiting local farmers to shop for food. This experience led him to launch a website where anyone can find a local farmer and buy their produce. It is an unprecedented case of cooperation in the industry that has long been considered in decline. Needless to say, it has created an alternative to buying imported foods and non-organic foods in the supermarket, justified a higher price, allowed customers access to a greater variety of products, and supported the farmers. What helped promote this great idea is that the founder was writing for Snob, a popular Russian magazine. He had a way to share his message.

This brings me back to thoughts about the need for an ecosystem. There are government grants in Russia, but the development of an investor community is much more important because investors can contribute more money, expertise, and mentorship to the project. Press and education should create awareness that helps generate sign-ups or, even better, paying customers. Finally, young people themselves should realize that they can support their peers who are trying to move forward instead of being stuck in what was created by their fathers and grandfathers. It is easy to show curiosity and check out a new startup. Maybe they are offering something that will make your life better. A few years ago, I did not use many of the startup products and services I use now (e.g. Soundcloud, Airbnb, Soluto, Dropbox) because I did not read any magazines or blogs. Has my life improved? Heck yes!

Innovation and Entrepreneurship in Malawi: Beyond Just Technology by Jones Cecil Ntaukira

Article at a glance

  • In Malawi, as in much of Africa, there are severe limitations placed on entrepreneurs due to the struggling economy. However, this should not prevent entrepreneurs from achieving their goals which contribute to innovative growth.
  • Young people are the key to driving Malawi’s development, as they are the most likely to create innovative business plans. However, there are many challenges facing young entrepreneurs in Malawi, such as weak intellectual property rights, financial barriers to small and medium-sized enterprises (SMEs), a lack of access to international markets, and a lack of business knowhow.
  • In order to improve the situation for young entrepreneurs, mentorship and training programs in business startup skills should be created; intellectual property rights should be improved; the business registration process and taxes of SMEs should be reformed; the information and communication technology infrastructure should be improved; and the financial institutions should be more open to young entrepreneurs.

Introduction

It is not common that one is born and has a life that they want. And when you are in Africa, it becomes even more uncommon and worse. For this reason, I will always remember my grade 7 teacher, Mrs. Mang’anda, not for her fashion consciousness that meant everyone in school liked her, but for her guts. She once told our class during a social and development studies period, “There are three worlds out there, we are told. For whatever reason we hardly hear about the rest, but all we know, my dear learners, is that this side of the world is called the Third World. I only hope that this does not affect you in any way and that you will be able to go up to university and be able to change this somehow.” My teacher died in 2011 just one year after I had graduated from university and at a time when I had just started to understand what she meant that day: that economic and geographic labeling must not stop anyone from achieving their dream.

Fast forward to 2012, pure agony is when people wake up, they go to work only to be told that the company has no money and cannot pay them, and they face losing their jobs. If this is happening in the Big Apple, then the “corn fields of Africa” are wilting unnoticed by the world. In Malawi, a country of 15 million people with only two public universities and an annual enrolment of less than 4,000 new students per academic year, one would think that the elite are few and white collar jobs are plenty. Out of more than 2,000 students graduating from public universities, less than 200 find jobs within one year.1 The most unfortunate toil at home, footing from one office to another until their only pointed black pair of shoes bought for them as a gift by their mother on their graduation day has no heel. They look for an internship, but alas! “We [companies] stopped doing that 10 years ago, are you not aware?” is the inquisitive answer, politely telling you to “get yourself out of here!” Nowadays, even government offices are lifeless, quiet, and deserted. Our environments continue to fall apart day in and day out, and we seem to be unable to get ahead on our own.

According to National Statistics Office (NSO), 52.2 percent of the Malawi population is 15-64 years old. In real numbers this translates to close to 8 million people. Unemployment is very high. Most people between the ages of 20 to 35 who hold a high school diploma or a college degree are unemployed.1 This gives rise to a need to rethink the economic system of Malawi and to embrace a new idealism in youth entrepreneurship that has potential to turn the status quo around. This essay seeks to connect entrepreneurship and technological innovation as two key factors for economic development in Malawi. Taking a non-partisan perspective in this essay, I will assess the climate for entrepreneurship in Malawi, the problems and barriers young entrepreneurs face, how creative thinking is fostered and what structures and institutions are available or lacking that might help young entrepreneurs forge ahead.

Entrepreneurship for Growth or Development?

We all share the belief that improvements in quality of life are tied to an increase in the gross domestic product (GDP) – meaning an increase in the value of goods and services for final uses. We also consider increasing GDP to be the primary goal in every modern society. This has reduced our life to the despondent function of producer and consumer.

Speaking of growth and development, it is important to understand that the two are separate ideas. Development is introducing an innovation which isn’t only the creation of new goods but also of new processes and goals. On the contrary, growth is given by the increase in consumption of existing goods and resources. For Malawi to seriously develop, the time has come to bridge the gap and embrace development models like youth entrepreneurship as the driver of our critically malnourished economy. Happiness can be attained without increasing the consumption of already existing goods and resources, but rather by using the methods of production that conserve nature and create sustainable development through creative and innovative new processes, methods, and systems. This gives rise to the need to rethink the importance of entrepreneurship, especially the kind that focuses on technological innovation. Entrepreneurship is about seeing opportunities and bringing about change. And when it comes to seeing opportunities that can turn around the way we interact, think, learn, do businesses, travel, seek medical attention, and work, I believe that true opportunities lie in young people.

The Larry Pages of Malawi

In 2012, I had learned of Kondwani Chimatiro and Daniel Chiwinga, two Information and Communication Technology (ICT) students from my alma mater who had engineered their own Internet search engine. Malawians have created a search engine? I was afraid! Not because I thought their work could be hackneyed, but because I was waiting to see which “giant” would entice these young entrepreneurs with money to buy their idea. I waited patiently. Six months passed with no large corporation buying the young men out. The search engine is called MyCfinder and it is designed to prioritize local results before searching everywhere in cyber space. Seven months later, I met the founders at a Development Entrepreneurship lab. I was surprised with what I saw in them. Full of energy and courage, they had just managed to raise funds of about US$500, which they used to register their start-up called Ctech Systems Inc. Furthermore, they had just finished work on Sahebo, a social network accredited to them as well. At the entrepreneurship lab, they were invited to present yet another great idea that they were proposing: an online Malawi Tourism Information Database, which people outside the country could use to book and track their hotel reservations in Malawi through mobile phone short message service (SMS). The ingeniousness of these young men passed my imagination. One year after Ctech Systems was founded, the start-up now employs the two founders, four graduate software engineers, and an accountant.

However, the journey has just started for Ctech Systems and they have to keep themselves accountable to make sure that their start-up grows into a big company. They will face major challenges that are typical of start-ups in Malawi. Firstly, one of the challenges is the lack of political will and government support to protect the intellectual property of great ideas and innovations. Malawi has copyright laws, a policy and copyright society, but most young people do not know how to acquire a patent for their innovative ideas. This leaves them vulnerable to copyright violators as well as losing out on possible ventures. This challenge is twofold. On the one hand, the government does not promote the intellectual property rights of young innovators; hence most of them do not know that they have to protect themselves. On the other hand, the few who are aware of how to protect their ideas usually meet a very harsh legal industry in Malawi that charges exorbitant legal fees. Either way, most entrepreneurs in Malawi operate their start-ups without proper registration or do not have patents. A legal fee for a lawyer to register a company is roughly US$500. As a result, the government loses out on revenue collection because of not registering all start-ups whereas the entrepreneurs lose a possibility to use their registration as proof to acquire a bank loan.

Secondly, Malawian entrepreneurs meet a lot of financial barriers to grow their businesses. I attended a panel discussion and presentation on the role of SMEs in accelerating Malawi’s economic growth. The discussion turned out to be such a popular issue that panelists spent more than four hours answering questions from the audience. One lady simply summed up everything by saying, “Malawi has not yet started promoting SMEs because no one is talking about them.” The most striking and inconvenient truth was the revelation from the Malawian banks’ of their definition of SMEs. To get a loan, banks in Malawi define an SME as a company with an annual turnover of US $166,000 (Owen Makaka, Senior SME Banker at NBS Bank-Malawi). Realistically, no SME, taking into account the ‘S’ alone, can have a turnover of US $166,000 annually. In addition to this unrealistic expectation, other banks require hard and soft collateral with considerable additional percentage in cash deposit in case of soft collateral.

The third challenge that young entrepreneurs face in Malawi is the lack of access to international markets. Despite Malawi being a signatory to so many trade treaties, including African Growth and Opportunity Act (AGOA), Common Market for East and Southern Africa (COMESA), Southern Africa Development Community (SADC), and the Preferential Trade Area (PTA), it has not yet fully utilized them. Malawi continues to import more than it exports. The government has not yet established deliberate policies to support entrepreneurs, and local companies become non-competitive with their counterparts in other African nations. According to UNdata, from 2006 to 2010, Malawi’s exports increased on average by 12.5 percent each year despite a drop of 10.2 percent in 2010 and amounted to US $106.62 million. During the same period, imports increased on average by 15.8 percent each year to US $217.30 million. Furthermore, the trade deficit increased from US $8 million in 2009 to US $1.1 billion in 2010.

The final challenge facing young entrepreneurs in Malawi is that most Malawian start-up entrepreneurs cannot write a good business plan with objectives and goals that are specific, measurable, achievable, reliable, and time specific. The banks cannot give money to a person who does not know what they want to do with the money. This problem has deep roots in the education system of our country, which does not include elements of entrepreneurship. When I was in college, I was of the view that when I graduated I would get a job in the civil service. On graduation day, my chancellor welcomed us into what he called “a dog eats dog world.” There were literally no jobs around. Government offices seemed so understaffed that they could absorb the whole graduating class, but they were not willing to hire new people. The reason was that Capitol Hill did not have any money due to austerity measures. Our education system prepares us to pick up white collar jobs in big companies and in government service. I wish they could teach us how those big companies started so we could start our own and reduce the unemployment levels in the country.

When I asked the Ctech founders how they fostered their ideas and concept despite hurdles, their answer was what I had anticipated: partnership. These two gentlemen saw how hard it was to penetrate the uneven system. The partnership came in the form of a venture capital: someone was willing to sponsor them to set up the company while becoming a member of the company. Seeing that this was the only chance available to them they agreed. According to them, it paid off and they don’t regret having made that partnership. I would like to think that partnership is crucial to successful start-up businesses, especially in the technology and innovation sector. Another example of a successful partnerships that are now doing well are Mzuzu Coffee, which brings together a number of coffee farmers who sell their coffee beans to one association who processes and packages the coffee for export and domestic use. Since 2007, Mzuzu Coffee has become a household name reaching more than 500 small holder coffee farmers across Malawi.

What is Really Needed?

First and foremost, Malawian entrepreneurs need mentorship and some sort of informal training in business start-up skills, at least the transferable ones. Though Malawi already has a lot of business consultants and the government has public vocational training centers, there is need to revamp them, especially the government training centers, with a focus on technology innovation. It is high time people considered entrepreneurship to be a full time career.

Secondly, the government needs to seriously rethink its policies to make local small and medium businesses competitive. This might include, but is not limited to, protecting the intellectual property of young entrepreneurs to avoid exploitation, removing barriers and bottlenecks in the business registration system, cutting on payroll taxes on small and medium business, for not more than three years, to allow them time to breathe and grow. That cost could then be transferred to broad based forms of taxation. That way, not only will the start-up grow quicker but also job creation would accelerate. Public-private partnership (PPP) is another way government can ensure that youth start-ups are supported. This can be applied to such industries that require heavy investments like energy, public service and communication. Under a PPP arrangement, the government can provide a capital subsidy in the form of a one-time grant so as to help young innovators initiate or accelerate a project. In other cases, the government may support start-ups by providing revenue subsidies, including a tax holiday by removing guaranteed annual revenues

Thirdly, for young entrepreneurs to grow in Malawi there is need for access to improved infrastructure in Information and Communication Technology (ICT). It is sad to note that Ctech’s search engine is hosted in South Africa because Malawi does not have good ICT infrastructure. The world is undergoing a historic transformation in the way people learn, work, communicate, and do business as a result of ICT innovation. We are living an information age, and it is now up to us to build an information society. This would be in line with the Malawi Vision 2020 which suggests Malawi will be transformed into a knowledge based economy with easy access to information.

Finally, there is need for financial houses and lending institutions to open up to start-up businesses by removing the unnecessary bottlenecks that they put before small and medium entrepreneurs. This can be made possible if government is also willing to come in and support the banks. Government can partner with the commercial banks deliberately through an agreement to act as guarantor for the startup entrepreneurs to access a loan. Most commercial banks are willing to give a loan if they are assured that the money will be repaid within the agreed time frame. Furthermore, banks are not willing to invest in high risk ventures like IT and new technology and if government is ready to act as a guarantor to startups in the industries, banks can also open up.

Conclusion

To end a story that I could write for many pages more, let me say that there is a great potential for start-up entrepreneurs, especially in innovation and technology, who can turn our economy around given a fair and level playing field. As it stands now, the Malawian government is not doing enough to protect and promote these small and medium-sized entrepreneurs in the innovation and technology sector, including the Information and Communication Technology (ICT) sector. With an ICT Policy in place, the government needs to engage the private sector to fully achieve its goal of turning Malawi into a knowledge-based and information-rich economy.

Jones Ntaukira is a forester, environmental scientist, an investor and the co-founding Executive Director of Empower Malawi, a not for profit sustainable development organization with a mission to enable entrepreneurs to build self-reliant communities.

The views expressed by these authors are their own and do not necessarily represent the views of the Center for International Private Enterprise (CIPE). CIPE grants permission to reprint, translate, and/or publish original articles from its Economic Reform Feature Service provided that (1) proper attribution is given to the original author and to CIPE and (2) CIPE is notified where the article is placed and a copy is provided to CIPE’s Washington office.

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