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nairobi

How important is Kenya in Africa’s growing startup scene?

With US President Barack Obama expected to open the Global Entrepreneurship Summit in Kenya on Saturday, the East African country has seen a lot of attention of late.

In a media briefing on Tuesday Kenya’s President Uhuru Kenyatta said about 1 400 delegates are expected at the summit, which runs until Sunday.

Much of Kenya’s fame has come from mobile money platform M-Pesa (developed in the UK), which has allowed any one, including those in rural areas, to send and receive payments by cellphone.

Added to this, a number of accelerators and incubators have cropped up in recent years in Nairobi (the latest which opened this month is Bidx, a company that links startups to investors). The government also plans to roll out a controversial techno city (see this earlier post).

Today Kenya’s capital is often known as Silicon Savannah (see this earlier story by The Economist).

So much going for it

Apart from solid economic growth (the economy is expected to grow at between six and seven percent from 2015 to 2017, after growth of 5.4% last year). The country has a lot going for it.

Internet adoption is growing (at 39% it exceeds that in Iran or India, according to a UN 2014 survey) while current average broadband speeds are around the same as in South Africa and Malaysia, according to the Ookla Net Index.

The country also scores high on innovation and financial markets in the World Economic Forum’s 2015 Global Competitiveness report. It ranks at 86 out of 130 countries in the 2015 Global Entrepreneurship Development Index, which places it fifth out of 29 African countries.

It’s no wonder that local entrepreneurs and investors such as Michael Macharia of Seven Seas technologies (in this CNBC interview earlier this week) are so positive about Kenya.

Cut the red stuff

However the country still has some way to go to cutting red tape – it’s ranked way down at 136 by the World Bank in the ease of doing business — behind a number of other African countries, but ahead of India.

Read more: Disrupt everything: 11 exciting Kenyan startups worth your time right now

Kenya does particularly badly when it comes to registering a business, mainly because of the high cost per capita in registration fees, (on this measure it is ranked in 143 position).

While it recently made getting credit easier by passing legislation that allows the sharing of both positive and negative credit information, it made dealing with construction permits more costly and made paying taxes more costly for companies by increasing employers’ social security contribution rate, notes the bank.

How great is it?

Another problem, notes a Ventureburn story in October, is that the tech startup scene seems dominated by expats. Locals complain that it is hard to access finance. But in some ways it makes sense, as those returning with capital, experience and connections might be more advantaged. In time locals who never ventured out of the country should take to tech startups too.

But a story by The Wired magazine last year suggested that much of the Silicon Savannah hype is built on a myth, propped up by foreign donor funding. Others counter that to tackle its many problems the continent can really do with more social enterprises.

Last week Kenya’s Business Daily noted that while the number of Kenyans involved in the informal sector has risen from six million in 2004 to 10 million in 2012, most are engaged in casual jobs paying low wages, rather than better paying formal jobs.

The tech scene may have created alot of hype for the East African country — but perhaps what Kenya’s case hints at is that while innovation is good, the basics have to be in place for if it wants to meet its Vision 2030 goal of becoming a middle-income country and rid itself of places like Kibera slum.

Image by Brian Snelson via Flickr


This article originally appeared on Small Business Insight, a Burn Media publishing partner. Stephen Timm writes on small business and is presently in Cape Town, South Africa. Click here to sign up to his monthly newsletter. Follow him on Twitter at @Smallbinsight and on Facebook

Author Bio

Stephen Timm
Stephen Timm writes on small business in emerging economies through his regular blog Small Business Insight. Follow him on Twitter at @Smallbinsight and on Facebook. More