Towards a framework for growing small businesses in Africa

Abstract

Purpose: This article presents a critical measure that both African governments and financial institutions can use to gauge whether a small business is likely to contribute meaningfully to economic growth.

Design/methodology/approach: The research was approached by the fact that only more recently has human capital emerged as a key factor for economic growth. Empirical research from developed countries and analysing of human capital in terms of labour growth income were done. In a similar setting, the innovation potential of an African business is heuristically argued to be directly dependent on human capital.

Findings/Results: Human capital aspect is found to be a vital part of a framework for growing small businesses in developed countries. The research showed that human capital in terms of labour growth expectations is essential to fully explain the linear market portfolio returns. Human capital may induce an increase in the number of innovative products, thus indirectly spurring economic growth through the channel of innovation.

Practical implications: Institutions could look to incorporate human capital as a critical factor toward a framework for growing small businesses. However, human capital is but only one key aspect discussed in a framework for growing small businesses in Africa.

Originality/value: There is a benefit to the government and financial institutions to include the human capital aspect in a small business funding framework. It will enable the funders to choose small businesses that can better contribute to the market returns and have a higher likelihood of releasing innovative products.