[4th Gen #2] Summarizing the Kenyan Context

The Kenyan Context

by Paivi Lakka

The Republic of Kenya is a country in Eastern Africa, with a total population of 45,941,977 in year 2014. This means that in terms of population, Kenya was the 30th largest country in the entire world. There is an average of 79.2 people for every square kilometer of land, which makes Kenya also rather sparsely populated. The capital city is Nairobi.

Kenya is a presidential representative democratic republic. The President Uhuru Kenyatta is the head of state, the government and a multi-party system. Executive power is exercised by the government.

From the Millennium Development Goals, Kenya has accomplished to reduce child mortality, narrow gender gaps, bring up the level of primary school enrollment and decrease HIV/AIDs. Poverty has decreased from 47 per cent in year 2005 to 34-42 per cent. Nevertheless, problems concerning inequality, poverty, governance and low levels of investment still exist. Al Shabaab, a jihadist militant group based in Somalia pose a security problem around the country and the government is trying to tackle problems concerning especially the insecurity within areas of high poverty levels.

According to the World Bank, Kenya is seen to be one of the fastest growing economies in the Sub-Saharan Africa and the country’s economic growth is estimated to rise from 5,4 per cent to 6-7 per cent in the next couple of years. According to the Kenya overview by the World Bank, the economy of Kenya is one quarter larger than what was estimated a couple of years ago, making it the ninth largest country in Africa by the Gross Domestic Product. The estimate of year 2014 of the Gross Domestic Product (GDP) in Kenya was $54.2 billion and $1,137 per capita.

The reasons behind this trend are the falling oil prices and public investment in infrastructure in energy and railways. According to the World Bank, in order to sustain its competitiveness and economic growth, Kenya has to maintain the country’s business environment.

According to Forbes, the Kenyan economy is still strongly relying on agriculture, but for instance, Information and Communication Technology (ICT) sectors are starting to be considered as more and more important. According to the Freedom House, Freedom on the net 2014 Kenya report, the country had the second highest Internet Gross Domestic Product (IGDPs) in Africa. IGDP measures the Internet’s contribution to a country’s economy.

According to The policy brief of GESCI-AKE collaborative project on living labs, digital evolution is also strongly developing the job market in Kenya. Through the use of ICT, many African economies have become more knowledge-based and the Kenyan capital Nairobi, for instance, is seen as the startup capital of Africa, where several innovation hubs and incubators have been developed in the past couple of years. According to the report on Kenya’s digital entrepreneurship ecosystem (2014), Nairobi has a huge potential to evolve into the predominant hub for digital entrepreneurship in Africa. Several hubs including iHub, Nailab, m:lab East Africa, Savannah Fund, GSMA and many startups already base in the Bishop Magua building, seen as the digital entrepreneurship ecosystem in central Nairobi.

The policy brief of GESCI-AKE project on living labs state that although the innovation environment in Kenya is becoming world known and there is a growing interest for local content among both Kenyan and global audiences, it is still lacking institutional support. Even though ICT is one of the fastest growing sectors and developing markets in the country, it is facing challenges concerning the implementation of actions developing the ICT infrastructure and services.

The government claims to be highly committed to better the ICT infrastructure, so as to improve the country’s economy. According to the policy guidelines of the Ministry of Information, Communication and Technology, the access to ICT services is still deficient in Kenya. The Internet penetration of Kenya has been on the rise, and the rates from 2015 indicate that there are estimated 26 million Internet users in the country, which means over half of the population. According to the online news site CNBC Arfica, the Communications Authority of Kenya (CAK) claims that Internet penetration in Kenya is 52.3 per cent. According to the Freedom house report on Freedom on the net 2014 in Kenya, the actual number of people having access to the Internet are probably lower, due to the evidence that many locals have several subscriptions offered by various providers, in order to exploit offers or to broaden their geographic coverage.

The telecommunication sector has developed successfully in Kenya during the last ten years. According to the policy guidelines of the ICT sector of the Kenyan Ministry of Information, Communication and Technology, there was an estimated 27 million mobile phones accessible for nearly the whole adult population of the country in 2013. The policy brief of GESCI-AKE collaborative project on living labs claims that the mobile phone penetration is around seventy per cent of the population. There is a significant rise of Internet access via phones, and mobile is the primary tool people access digital services and the Internet with. According to the report on Kenya’s digital entrepreneurship ecosystem, 16 million people, around 99 per cent of internet subscribers, accessed the internet with mobile devices in year 2013.

An article by AfricaRenewal explains, how the broadband market has developed in recent years after remarkable investments in network upgrades and installation of four fibre-optic undersea cables, which have augmented the transmission capacity of data, made the connections faster and lowered the prices. Through this cable connection, Kenya became independent from expensive satellite services, and the broadband prices have gone down enabling Internet connection for a bigger part of the population.

The Kenyan mobile money service M-Pesa is the world’s leading electronic cash transfer system operating on mobile platforms. Kenya has an exceptionally advanced mobile payments penetration of around three out of four adults, around 23 people as registered users, claims the report on Kenya’s digital entrepreneurship ecosystem. M-PESA, is now spread across Africa by mobile telecommunications carrier Safaricom, which has helped entrepreneurs in Kenya in the field of tech startups by serving as a technology platform. According to the iHub Community, the implication is that mobile money is helping entrepreneurial activities in the field of technological innovations and startup activities all across the continent.
T
he report on Kenya’s digital entrepreneurship ecosystem claims that one opportunity to help the tech startups includes the co-operation with mobile operators in order to ease monetary transactions, as well as assistance in finding these startups and using them. So far, only a couple of startups in Kenya have discovered this opportunity, although mobile payments platforms have helped digital entrepreneurs tremendously elsewhere in the world, because they facilitate the acceptance of payments for businesses. The report also notes that Kenya has a need for investors working on early stages of startups, as a remarkable number of startups in the country are self-funded. As these early stages call for taking risk, there seems to be a lack of funding and business angels at the prototype stage of new startups. Only under nine per cent of Kenyan startups were funded by risk capital angels. The study made a comparison with the Silicon valley, where 64 per cent of startups were funded with risk capital. One opportunity would be offering education for potential business angel investors on how to invest in startups as well as to network with each other.

According to the iHub Community, one of the problems is that in sub-Saharan Africa, the universities and colleges train and educate the students for ready jobs in companies that already existed for a while, instead of supporting entrepreneurship and innovations.

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One thought on “[4th Gen #2] Summarizing the Kenyan Context

  1. Paivi – most interesting research on the Kenyan context – and a very enjoyable and informative read. Well done – you have nicely summarized the Kenya context in terms of key socio-economic development trends and the emerging and dynamic knowledge economy environment driven by technology that are establishing Kenya as a lead actor on the content for doing business and investing in innovation.

    What was interesting – especially towards the end of your overview of the Kenya context – was your identification of gap areas for innovation and start ups in Kenya that leverage the potential of platforms for mobile monetary transactions. You also identify the dearth of risk capital angels to engage and invest in such start-ups in Kenya/ Africa continent as compared to Silicon Valley where 64% of startups are funded by risk capital angels.

    Perhaps this is a further area for research – to dig deeper on the enabling conditions for start-ups and look at examples of work-around risk investment solutions emerging on the African continent – that could inform AKE development with a focus how to attract ‘start-up’ risk capital angel investment into prototype development. Mary (Education Specialist, GESCI)

    Like

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