SWOT analysis and issues identification on the current situation of Kenya’s innovation ecosystem
By Irene Hau
- Fast growing economy
Kenya is 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 (World Bank). It is 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 (World Bank).
- Regional leader in incubating innovation
Many African economies have become more knowledge-based, and the Kenyan capital Nairobi is seen as the startup capital of Africa, where several innovation hubs and incubators have been developed in the past couple of years. Nairobi has a huge potential to evolve into the predominant hub for digital entrepreneurship in Africa, since Kenya has the second highest Internet Gross Domestic Product (IGDPs) in Africa (Freedom House).
In the Digital Evolution Index, which ranks countries on total scores across four drivers of demand, supply, institutional environment, and innovation in 2013, Kenya is one of the slowly advancing countries. It has a score of 32.97 in innovation, which is ahead of its neighbouring countries.
- Interested international funders and partners
Kenya is the technology hub of Africa. There is an increasing interest of investing in incubating innovation from development organizations, multinational technology companies, and private equity firms, particularly, IBM, Google, P&G, Nokia, Huawei, Intel, and Microsoft (Marchant, 2015, p. 4, 8).
- Potential market for technology
Kenya has a growing middle class and growing urban population, with mobile phone penetration around seventy per cent of the population. Kenyan administration is economically competent, because it is not dependent on natural resources like other Afrian countries, such as Nigeria, and Ghana. Kenya presents itself as an attractive market for technology, with latest development of its broadband market being independent from expensive satellite services, and offering faster connections at cheaper prices.
- Lacking institutional support for ICT infrastructure and services development
The results from the Sound of the City living lab project indicate that Kenya lacks institutional support for ICT infrastructure and services development, especially in getting industry-standard hardware and software, which slows down the development of the digital creative industries in Kenya.
- Lack of funding and business angels at the prototype stage of new startups
There are only under 9% of Kenyan startups funded by risk capital angels, the lack of funding angels discourages and even kills the innovation startups. There are also varying levels of long-term investment in the local Kenyan innovation ecosystem. Since the investment is currently mostly short-term, Kenyan tech incubators are increasingly looking for sources of financial support.
- Government’s inexpertise as an innovation incubator
Despite wanting to play a role in the new innovation process, the Kenyan government does not have the existing in-house capacity to enable such development. Even though it recently established the ICT Authority, it lacks the required internal skills and knowledge to build new government R&D labs. Moreover, it lacks the familiarity and engagement with the needs of start-ups, incubators, and tech community, leading to an underestimation of funding for a nationwide expansion project of an incubator Nailab. Instead of reaching the initial goal of creating new physical and sustainable incubation offices, the funding was only utilized to support unsustainable trainings and hackathons (Marchant, 2015, p. 14).
- Changing consumer behaviour (multi-screen consumer behaviour)
The GESCI Policy Brief 2013 noted that the TV and media services are increasingly accessed by consumers via apps on their devices in Kenya, the growth and development of digital creative media industries can be further accelerated by increasing engagement of consumers with digital creative content and rise in consumers’ readiness to pay for content, through value-added apps and services for smart devices.
- Increasing foreign private equity investment shifting from fixed assets to services
The Sound of the City policy brief pointed out the interest of investors shifting from fixed assets to services creates opportunities for more tech innovations and related cultural products and services. Crowd funding campaigns for innovation projects can be made possible with generous donors.
- Brokering tech startups with mobile operators in order to ease monetary transactions
There is the opportunity of facilitating acceptance of payments for businesses, as mobile payment platforms have helped digital entrepreneurs tremendously in the world. Yet, this opportunity in Kenya has yet to be seized.
- Offering education for potential business angel investors and universities
One opportunity can be educating investors how to offer funding to startups as well as to network with each other, so it will create a friendly investing environment. Moreover, education can be offered to universities on supporting entrepreneruship and innovations among students, so as to integrate the knowledge production at the universities in Kenya.
- Only focusing on ICT and mobile innovations and neglecting culture
The Comprehensive Kenyan policy Vision 2030 called for attention in upscaling ICT-based services, with the consideration of needs for cultural investment in education, youth, and gender equality.
- Only targeting at attracting high-profile talents
The innovation industry in Kenya is only interested in recruiting talents with higher education qualifications. This turns down a great amount of potential talents who lack qualifications and experience, even though they have passion for innovation and they learn the skills needed on their own. There is also female labour force available in Kenya, which the industry can fully utilize to its best advantage, and increase the low degree of participation of women in the innovation industry.
- Too costly for small start-ups
Expensive Internet access and the high costs of renting office space with reliable power remain the major impediments to technology innovation on the African continent.
- Imbalance of power in the Kenyan innovation ecosystem
The Kenyan innovation ecosystem consists of more foreign actors with large amount of economic capitals than local actors. This is because of the long history of foreign participation in Kenya’s economic affairs. This leads to local companies not being entirely domestic in origin, and international actors tend to only set up regional offices rather than headquarters in Kenya. Since Kenya is not the home base, multinational companies need not pay taxes to the Kenyan government, focus on Kenyan consumers as their initial user market, nor cater to the developmental needs of the Kenyan innovation ecosystem.
- Social impact motivations vs. profit motivations
There is a complicated interplay between the desire for economic growth and desire for growth with a social impact among different actors in the Kenyan innovation ecosystem. The Kenyan government desires for growth with social impact that helps the poorest communities, rather than an overall national economic growth that leads to increased economic inequality (ESW, 2013, in Marchant, 2015, p. 11). As for the multinational companies, despite admitting to being in Kenya for market gains and capturing the growing African mobile phone market, they also emphasize the corporate social responsibility in helping to solve social problems in Kenya. The Kenyan context represents a national innovation system, in which multiple actors engage in innovation in a national economy, with the central driving factor consisting of social impact overlapping with profit and economic growth.
- Lack of networks and collaborations among different stakeholders
Different case studies have shown the importance of building networks for the success of innovation in Silicon Valley and Germany (Saxenian, 1996; Gemunden, Ritter, & Heydebrech, 1996, in Marchant, 2015, p. 7). The networks include trade networks, computer networks, knowledge networks, and social networks. Innovation is constantly changing in a globalized context, and networks and partnerships need to be leveraged for more effective innovation. There are the role of universities for research and development, the role of government in providing financial and regulatory support, and the role of unconventional actors, such as end-users, in exploring open innovation and networks.
Local participation bringing together different individuals and organizations is key in ensuring the innovation takes into account sustainability and the reflectivity of local needs (Nelson & Wright, 1995; Hickey & Mohan, 2004, in Marchant, 2015, p. 10). For such local participation to take place, there has to be an innovation incubator brokering between industry and universities, between knowledge production and building business around them and the government. It is because the interactivity between multiple actors in the innovation ecosystem is constantly in flux and being renegotiated and reorganized. In order to develop a successful innovation ecosystem, collaborations and engagements among different stakeholders are the prerequisite.
However, there is a lack of networks and collaborations among different stakeholders. The Kenyan government does not engage with the technology community when carrying out innovation policy changes, the private sector does not work with the civil society. These contribute to the slow advancement of the Kenyan innovation ecosystem, when what it actually needs is a breakthrough.