1.1 Introduction
Africa has recently achieved a remarkable economic expansion despite the global recession. Countries like Ethiopia, Ghana, Angola, Rwanda, Mozambique, and Zambia have enjoyed growth of between 7% and 9% year on year and have helped to triple the size of the African economy since 2000. Within the past decade, real income per person has jumped by 30% and about 350 million people are in the middle class and able to spend between $2 to $20 per day (Blerk 2018). The growth in Africa continues unabated as six of the 10 fastest growing economies in the world in 2018 are in the continent (World Economic Forum 2018). Currently, urbanisation is at 37% and Africa is comparable to China but is expected to be the fastest urbanising region in the world from 2020 to 2050. Africa is emerging as a magnet for investment, one that offers opportunities for growth for entrepreneurs, investors, businesses and other economies (BBC News 2018; Deloitte 2014). Africa has a population of 1.2 billion people and a gross domestic product (GDP) of US$2.6 trillion. On 21 March 2018, the African Continental Free Trade Area that offers Africans the right to move, work, invest, and reside anywhere in the continent was agreed by 44 countries, in Kigali, boosting prospects for entrepreneurship and economic development (African Union Commission 2018). Interestingly, entrepreneurs and their small and medium-sized enterprises (SMEs) are at the heart of the economic boom. SMEs create around 80% of the regionâs employment, giving rise to demand for new goods and services (Africa Economic Outlook 2017). Not surprisingly, recently politicians, entrepreneurs, investors, and corporate executives have developed a keen interest in building networks and relationships with customers in the African continent, which is now regarded as an emerging market destination for businesses to invest, grow, and expand (BBC News 2018; George et al. 2016; Accenture 2010).
In spite of the considerable interest, entrepreneurs, investors, and corporate executives are deterred by the lack of trust in doing business in Africa due to widespread assumptions and reports in the West about the numerous weak institutional structures embedded in African economies (World Bank 2018; The Economist 2016; Bruton et al. 2010). Based on these assumptions and reports, strong institutions provide a sound economic environment and trust for entrepreneurship. As a result, in advanced economies with strong institutions, entrepreneurs have lower transaction costs and a strong trust to invest and innovate (North 1990). Conversely, in emerging economies with weak institutions, transaction costs are higher and so there is low trust to invest and innovate. According to these assumptions, economic and political institutional stability has led to the recent surge in entrepreneurship in Africa (World Bank 2018). Existing reports and conceptual developments on institutions and entrepreneurship have also mostly drawn on advanced Western economy contexts to focus on how state and market institutions could facilitate larger organisationsâ investments. However, these arguments about the role of institutions, trust development, and entrepreneurship do not reflect entrepreneurship theory or practices in emerging economies (Peng et al. 2008; Smallbone and Welter 2013) where entrepreneurs as actors, draw on cultural indigenous institutions to develop trust in the absence of strong state and market institutions (Welter and Smallbone 2011; Amoako and Lyon 2014). Entrepreneurship incorporates the discovery, creation, and exploitation of opportunities and the success or failure of these activities is attributed to the individual entrepreneur (Gartner 1988; Shane and Venkataman 2000), and the formal and informal institutional factors that shape opportunities (Chell 2000). While strong institutions provide a sound economic environment and trust for entrepreneurs in developed economies, in emerging economies with weak formal institutions, cultural institutions substitute for the weak institutions to provide trust to entrepreneurs to encourage them to invest and innovate.
In a study in the four largest emerging economiesâBrazil, Russia, India, and Chinaâalso known as the BRICs, Estrin and Pervezer (2011) found that in the midst of weak state institutions, informal institutions might substitute for and replace ineffective formal institutions leading to enhanced domestic and foreign investment. Similarly, African entrepreneurs draw on indigenous cultural institutions to develop trust in entrepreneurial relationships in order to exploit opportunities embedded in the weak formal institutional environments (Tillmar and Lindkvist 2007; Amoako and Lyon 2014).
Yet, there is a chronic dearth of knowledge about how entrepreneurs in Africa draw on indigenous cultural institutions which work side by side with institutions of the modern states in Africa (Jackson et al. 2008; George et al. 2016). This book responds to these gaps by showing how African entrepreneurs operate in the context of weak state institutions by relying on indigenous cultural institutions to develop trust in entrepreneurial relationships.
This chapter, and indeed this book, re-examines the nature of institutions and how institutions shape entrepreneurial activity and trust development in African economy contexts. In these contexts, like other emerging economy contexts, the personal networks of the entrepreneur and norms governing interpersonal relationships play a crucial role in firm strategy and performance (Peng et al. 2008). Thus, in emerging economies, trust in networks of mutually supportive and cooperative relationships is important for market entry and the entrepreneurial process in general (Child and Rodrigues 2007).
The present chapter contributes to an understanding of the role of state and market institutions, indigenous cultural institutions, trust, and the entrepreneur in entrepreneurship in Africa. The chapter draws on the notions of institutions and institutional logics and connects them with broader conversations in entrepreneurship and trust theories to explore how both structure and agency influence entrepreneurship. By drawing on the institutional logics approach, the chapter is able to show how entrepreneurs draw on the logics of indigenous cultural institutions to develop networks, relationships, and trust in response to the weak institutional environment. This chapter, and for that matter this book, seeks to answer the key question: âWhat are institutions and how do they influence trust development in entrepreneurial relationships in Africa?â
1.2 Definitions and Assumptions
The term âInstitutionsâ is defined as the âtaken-for-granted assumptions which inform and shape the actions of individual actors ⊠at the same time, these taken-for-granted assumptions are themselves the outcome of social actionsâ (Burns and Scapens 2000, 8). Shane (2003) defines entrepreneurship as the ability to recognise and evaluate opportunity and mobilise resources to establish or grow a business in a given context. The entrepreneur refers to the individual who recognises and exploits opportunities to establish or grow a business in a given context. These two definitions integrate entrepreneurial action with context and the establishment or growth of a business. The author adopts a working definition of trust as âa set of positive expectations that is shared by parties in an exchange that things and people will not fail them in spite of the possibility of being let downâ. This definition highlights trust as an expectation based on accepted cultural norms and interactions within specific contexts (Zucker 1986; Zaheer et al. 1998; Möllering 2006). Institutional logics is defined as the âsocially constructed, historical patterns of cultural symbols and material practices, including assumptions, values, and beliefs by which individuals and organisations provide meaning to their daily activity, organize time and space and reproduce their lives and experiencesâ (Thornton et al. 2012, 2). A logic provides a set of coherent organising principles for a particular sphere of life and yet logics often overlap such that actors draw on multiple logics within and across domains (Friedland and Alford 1991; Besharov and Smith 2014). In this book, the author focuses on how societal-level logics of state and indigenous cultural institutions and norms influence entrepreneursâ decisions about trust development in entrepreneurial relationships in Africa. Drawing on the institutional logics approach, the following assumptions underpin this introductory chapter as well as this book.
First, the author assumes that trust has a significant impact on entrepreneurial behaviour and low levels of trust constrain entrepreneurship while high levels of trust enable entrepreneurship. Second, it is assumed that institutions and particularly societal-level institutional logics underpin trust development in entrepreneurship in a variety of ways due to factors such as geographic, historical, and cultural contexts in which entrepreneurs and organisations operate (see Besharov and Smith 2014). Third, the author assumes that societal-level institutional logics such as rules, legal institutions, cultural beliefs, norms, and practices shape entrepreneursâ cognition and decision making (Vickers et al. 2017; North 1990; Scott 2013; Thornton et al. 2012; Friedland and Alford 1991). Fourth, the author assumes that institutional logics offer strategic resources that connect organisationsâ strategy for trusting, networking, relationship building, and decision making (see Durand et al. 2013). Fifth, it is assumed that actors use logics ...