Startups Grow in Africa, But Ecosystems Need More to Flourish

Monday, July 27, 2015

Obamania has gripped Kenya as the 44th U.S. president lands in Nairobi, the country’s capital, for a visit. From t-shirts, mugs, and caps with Barack Obama’s name and image to “Obama themed ringtones,” (“Yes we can!”) it will not be hard for the U.S. president to find entrepreneurs in Kenya.

Among East African countries Kenya, Africa’s fifth largest economy, is considered a startup beacon. Indeed many have come to call Kenya “Silicon Savannah.” It’s a misleading title. Kenya percolates with entrepreneurial hustle that has started to yield world-changing innovations such as the mobile money and payment system M-Pesa andUshahidi, the open software platform for information collection and interactive mapping.

Yet Kenya is not another Silicon Valley. The startups rising in Kenya aren’t focused on the future or the “next big thing.” They are focused, as a number of entrepreneurs and investors I spoke to pointed out, on disrupting existing challenges such as poor infrastructure and sanitation, conflict, lack of medical care, and a lack of banks and financial resources. Startups in Kenya are harnessing technology not to “leapfrog” past the obstacles that have held Kenya back but to level them and lay the foundations that will poise Kenya for growth.

“The technology opportunity (in Kenya) has been overblown in the international media,” said David Loew, a manager at Open Capital Advisors, an advisory and investment firm based in Nairobi. Eighty percent of the population, Loew said, is employed in low-level agricultural work – a number that the U.S. Agency for International Development (USAID) backs. The other 20 percent he noted “are not typically part of the technology or electronic consumer class.”

“M-Pesa was able to strike a nerve and do really well because they managed to bring a very basic financial service to a large portion of the population – they effectively gave people a bank account through very simple mobile phone technology” Loew said. Only 19 percent of Kenya’s population had access to a bank account before M-Pesa launched in March 2007. Today, over 67 percent of Kenyans have access to financial services – 58 percent using mobile money services. Kenya has 32.3 mobile subscribers and a 79.2 percent mobile penetration rate.

In terms of developing apps and other technologies beyond M-Pesa, Loew believes while there is potential to build other technologies, it’s premature to expect anything on par with the technologies coming out of Silicon Valley. It’s all about the market.

Despite advanced broadband and connectivity, with a population of 45 million, 45 percent of whom live below the poverty line, Kenya’s market is too small to make it a viable consumer market for technology.

Source: TechCrunch (link opens in a new window)