GDP and Startups: Correlations and Opportunities for growth

GDP and startups are correlated – wait for it!. Startups help countries they find themselves significantly improve their GDP by providing new opportunities for growth; while countries with stronger GDP help their startups find traction fast by providing enabling environments.

GDP in this article is regarded as GDP per capita representing the true measure of the prosperity of a nation.

For instance, Nigeria has a GDP of $397.3 billion while her GDP per capita is $2028.8, compared to south Africa with GDP of $368.3 billion while her GDP per capita is $6374.03. This disparity is due to the difference in the population that contributes the GDP. – 2018

Startups have single handedly driven growth in countries like Israel; they have attracted investments in almost all economic terrains of the world from the unstable Nigeria to the stable United states defying the risk involved to achieve phenomenal results. Startup are known to defy economic recessions, meltdowns and pandemics to stay in business and even grow. These proven possibilities presents avenue to contribute to the economy, and invariably the GDP, considerably.

Startups may be new companies and start relatively small compared to other conglomerates but they do play a significant role in economic growth. They create new jobs which means more employment, the increase in employment improves the economy.

Startups also contribute to economic diversity as they incite innovation and encourage competition. New entrepreneurs can bring new ideas needed to stir innovation and generate competition to the table.

Startups are different from small businesses as they have a direct extensive impact on the cities in which they are headquartered. Microsoft changed Redmond and Google transformed Mountain View, California, Infosys changed Bangalore, Alibaba transformed Hangzhou. These companies started relatively small, and grew, to transform the cities where they operated providing job opportunities to both experienced and young professionals.

NIGERIA

Nigeria is the premier investment destination on the African continent in 2018.”

Disrupt Africa Funding Report

Nigeria has a large population of about 200 million people. However the very low purchasing power of the population has made the addressable market for several niches of the economy to be considerable lower than the population. This has in many ways impeded the growth of startups in Nigeria.

In Nigeria, Startups are constrained by the basics of a typical business environment. Power outages, poor access to finance, political instability and corruption pose severe constraints on startup growth in Nigeria.

Despite these odds, Nigeria has the largest startup ecosystem in Africa with more than 500 active and viable startups, Nigeria is fast becoming a hub for startups with cities like, Lagos, Abuja, Ibadan, Kano and Aba at the forefront of this movement.

Nigeria’s e-commerce leader Jumia employs about 3,000 workers, and 100,000 more workers who help customers place orders (Adegoke, 2018). Similarly, Uber, which launched in Nigeria in 2013, has created 7,000 jobs in the country (Ubabukoh, 2017).

Source: tradingeconomics.com

How GDP growth defies projection:

The Israel case study

Israel has the highest density of start-ups in the world; With a population of around 8.5 million and about 4000 startups, it has the largest number of startups per capita in the world, around one startup per 1,400 people.

After the United States, Israel has more companies listed on the NASDAQ than any other country in the world, including India, China, Korea, Singapore, and Ireland,

Israel’s economy has also grown faster than the average for the developed economies of the world in most years since 1995, Even the wars Israel has repeatedly fought failed to stop it from achieving this feat.

gdp growth rates
Source: “Miracles and Mirages,” Economist, April 13, 2008; “GDP Growth Rates by Country and Region, 1970–2007,

During the six years following 2000, Israel was hit not just by the bursting of the global tech bubble but by the most intense period of terrorist attacks in its history and by the second Lebanon war.

Yet Israel’s share of the global venture capital market did not drop—it doubled, from 15 percent to 31 percent. And the Tel Aviv stock exchange was higher on the last day of the Lebanon war than on the first, as it was after the three-week military operation in the Gaza Strip in 2009. The sheer enabling environment for startups results in an healthy economy that is not moved by the noise of war.

How startups help the economy; Contribute to the GDP

Startups are engines of growth. Methods must be sought to foster competition and assist transformational entrepreneurs in order to avoid economic stagnation,

Eric Corl
  • Creates opportunities by opening up new markets

E-commerce was almost non-existent before Amazon stole the show. Today, it is a whole non negligible sector of economies worth trillions of dollars. This is only an example out of many.

  • Increase employment

Older companies seem to create more jobs. However, when we consider the concept of net job created , it would become obvious that they are mostly job destroyers. Older companies tend to lay off workers as they try to adopt less cumbersome processes to improve their efficiency.

Startups on the bright side are new, hence all the jobs they create are new and are an net positive with regards to job creation.

According to  Business Dynamics Statistics, a U.S. government dataset compiled by the U.S. Census Bureau, between 1977 and 2005, existing companies lost a total 1 million jobs per year. while startups added an average of 3 million jobs. – Startups, in this study, are defined as firms younger than one year old.

  • Transform their immediate surrounding

Startups attract fresh talent to areas they find themselves and in no time transform the cities, bringing in wealth and truckload of job oppurtunities through value created.

  • Improve technology

Startups invest in new technologies and cutting-edge innovation as oppose to trying to improve older technologies and incremental innovation.

This disruptive approach to technology by startups most times yield impressive results and more often than not acquisition by much bigger companies (Google, Microsoft) who can use their economy of scale to push innovation further.

How GDP affects startups

  • Ability to innovate

In developing countries(countries with lower GDP per capita), bureaucratic barriers and costs are main setback for start-ups and their ability to invariably their ability to innovate.

  • Cost of doing business

In a study by Ömer Doruk and Ergül Söylemezoğlu, the startup procedures and startup costs effect on new business establishment relation was investigated in 61 developing countries. Startup costs and startup procedures were found out to be the main impediment of innovation.

  • Tendency to stay in business

In counties with high GDP per capita, the business environment is usually more conducive. Startups find it easier to set up shop, secure funding to focus on innovation and development of the cutting-edge technologies that help them run successful businesses. These increases their tendency to stay in business considerably

In conclusion,

Startups are affected by the policy, credibility and stability of their immediate country as this is the first basis of interaction with the rest of the world. Governments must take measures that help these infant wonders, that add immense value to the economy, to walk unscathed through their formative years.

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John Omokayode

Mechanical Engineering | Business Developer - I have a particular liking for the business side of everything. African businesses are capable of shaping the world economy!

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