The Startup Ecosystem in Nairobi
A mobile evolution is taking place in the city of Nairobi. Digital entrepreneurship has given the tech sector a boost: creating jobs, providing customers with innovative services and providing new streams of revenue. With mobile phone use growing at an exponential rate, there is a wide market available for Nairobi to join the global community.
While the startup market in Nairobi, Kenya is booming, entrepreneurs are beginning to consider Nairobi as a viable solution to the question of ‘Where should we establish our company?’ To understand the attraction of this African city, we’ll look at: 1) the location, 2) the tax incentives, 3) legal incentives, 4) investors, 5) local resources, 6) specialization of the area, and 7) startups to watch.
As the most populous city in Eastern Africa, as well as the capital of Kenya, Nairobi is a city that has recently began to add a new dimension to its economic growth. By capitalizing on the financial and political realms that are present in Nairobi, the startup market can influence the city, and ultimately the country with improvements. The geography of Nairobi appears very welcoming, located right at the mouth of the Nairobi River, there is a beautiful skyline combination of trees and sky rises.
Visitors to Nairobi are astonished to find that there is a national park within the city limits. The 40,000 acre game reserve is home to many of Africa’s native animals and provides a walking trail that allows visitors to come up close and personal with many of the animals. This commitment to green areas provides a means of escape when a break is needed from the stress of entrepreneurship.
The city of Nairobi is wealthy as compared to most of the cities of Africa, but is still predominantly a poor city. Over half of the city’s residents live in what is considered a slum and the rest of the city is wrought with a lack of housing and office space. Apartments and housing developments are being planned and built outside the city limits, increasing the available space for entrepreneurs.
The educational system in Nairobi is extensive; over ten colleges and universities have campuses within the city. There are technological colleges as well as traditional programs which graduate around 100,000 students every year. This steady stream of educated and skilled workers entering the tech market has worked to bolster the Nairobi startup bug: there are a sufficient number of workers to not only design innovative technology but to branch out into entrepreneurship.
Within the city, there is an extensive network of roads utilized by bus, taxi and other transportation providers. The city is connected to other cities within Kenya by the interstate system, as well as through the airlines. A major hub, Nairobi has a multitude of transportation options available. This makes it more advantageous for entrepreneurs who are considering a move elsewhere.
Advantages to choosing the city
The city of Nairobi does not have a long history in the tech market. As recently as 2002, Nairobi was exporting a paltry $16 million in technology-related services. Within ten years, however, tech-related services had exploded into a $360 million dollar industry. Suddenly, Nairobi had a new name: ‘Silicon Savannah’.
What led to this burst of economic growth? Several factors have contributed to the seemingly overnight development of Nairobi as a startup hub: innovation, government support and startup identity. By choosing Nairobi as the headquarters for a tech company, entrepreneurs are taking advantage of the momentum that has driven the city into success.
Described as a technological backwater in 2005, Kenya (and by extension, Nairobi) had minimal access to the internet. Available service was only accessed through costly satellites. The secretary of Information and Communications Technology contracted to have four giant internet cables brought in underwater to the coast of Kenya, and the availability of internet usage spread like wildfire through the savannah.
One of the most compelling aspects of Kenya’s rise to startup hub fame is the lack of technology the city had. Up until a short time ago, few people had access to the internet and even fewer had access to a laptop or computer. New studies show that approximately 74 out of 100 Kenyans own a cell phone, and 99% of the internet connection used today is accessed via a smart phone. With approximately half of the country’s population accessing the internet on a smart phone, the availability of resources and skills is growing every day.
In spite of a lack of technology available for daily use, M-PESA, a mobile payments system was formed and launched in the country. Kenya (and Nairobi) was embracing the technology which allowed for cashless payments, prepaid bus fares and school fee payment and tracking. The success (and public acceptance) of M-PESA helped to motivate and inspire the startup crowd: it is possible to create a system of technology platforms, even when there is a startling lack of technology to use.
Startups are exploding onto the scene in Nairobi. Young entrepreneurs are beginning to focus on innovation and entrepreneurship, the technology capabilities are becoming more stable and skilled workers are flocking to hubs to start new companies. The downside to this bustling startup is, perhaps, one of the largest hurdles a technology center can face: its government.
The government of Kenya is described, on its best day, as corrupt and inefficient. While a new leadership group has come into office, the city of Nairobi is still faced with the lack of government support and poor regulations that created obstacles to becoming entrepreneurs. Accusations of corruption affect Nairobi as a startup city because of the impact it has on foreign entrepreneurs and investors coming to the country to seek opportunity.
As the government begins to establish itself as a strong leadership, more and more entrepreneurs will be willing to take the risk. Finding tax incentives that encourage entrepreneurship, make it easier to become an investor and eliminating the additional tax penalties that startups often face would go a long with increasing startups.
The new administration in the Kenyan government is beginning to make changes to the regulations and rules that prevent people from effectively starting a company. However, one of the hurdles entrepreneurship needs to overcome is the delay in corporate registration. Currently, it can take upwards of 100 days to become licensed to do work in Kenya and can cost the equivalent of twice the average annual income. The excessive delay and high expense automatically deters individuals from attempting to become entrepreneurs.
A new administration can change regulations and begin to make the city more startup friendly, but the shadows of corruption are long and the overall impression of the government is not good. To overcome this stigma of corruption and continue to be successful, entrepreneurs must go into establishing a business in Nairobi with their eyes wide open. Bribery is common and considered a normal part of business in Kenya. The newer government is showing signs of improvement, but overall, the marketplace is in bad shape for entrepreneurs. Widespread intellectual property rights (IPR) violations are another circumstance that can greatly the affect the willingness of entrepreneurs to share their ideas and innovation with others. Without a sense of confidence in the government, the rise that Nairobi is experiencing as a startup hub may be short lived.
In the same way tax incentives must be established, finding ways to streamline the legal process of becoming a startup would increase the number of entrepreneurs who are starting companies within Nairobi. Reducing the number of days it takes to become registered, offering entrepreneur visas for foreign entrepreneurs or other strategies can improve the legal process for establishing a startup.
Startup hubs and incubators are beginning to pop up around the city; providing investors with opportunities to invest in the growing Nairobi economy.
Organizations such as the Savannah Fund are designed to generate funds for startups in Nairobi. By working in conjunction with an incubator, the possibility of finding companies to invest in increases dramatically.
In Nairobi, entrepreneurs have an array of opportunities for funding. There are aid agencies, foreign NGOs and development funds all willing (and eager) to invest in the work of startups. The startup entrepreneur must be selective, however, and realize that if the money seems too good to be true, it most likely is coming with strings attached. While the young entrepreneur may be excited to have investors in their company and be willing to give up a portion of the company in exchange, innovation’s nature is to be risky; a government grant removes the risk. Nairobi needs to be careful that they don’t exchange the thriving, vital startup market for a new form of government control in the shape of funding.
There are a growing number of startup hubs within the city of Nairobi. The intention of the startup community is to specialize each hub, so that they will become ‘centers’ focused on specific themes. As the hub develops, it will be able to become a resource for others to rely on and can become part of the network of hubs that crisscross the nation.
New hubs are launching (there are now six in Nairobi) and there is a sense that for many, this will be the last opportunity they will have. Finding the hub that meets the specific needs a startup has is tricky, but can be done.
The creation of startup hubs is one of the most important resources that Nairobi has. As a recent entry into the startup market, there is not a class of successful entrepreneurs to turn to for advice and guidance, so the collaboration that is found in hubs is essential. Hubs in Nairobi offer classes, social activities and co-sharing space to support the growing tech market. In an environment where a majority of the people does not have computers, part of the initial tech services needs to be learning how to work on a laptop or desktop.
Despite the modern look of the city, the infrastructure of the city is often unreliable and power shortages, traffic congestion and other concerns can affect the programmer’s ability to work. Finding meaningful ways to work around these setbacks not only strengthens an entrepreneur’s resolve, but it can also lead to discoveries of how to eliminate these issues on a larger scale.
Nairobi has a large available workforce, a large number of natural resources and is strategically located. By capitalizing on the resources it has, the city can continue to develop in the tech market and will become more competitive in the startup community.
Due to the overwhelming number of people who have cellphones but no laptop computer or additional electronic devices, the city of Nairobi has become experts at wireless or cell phone technologies. Interestingly, developing technologies in a country that previously had no technology can be a bit like a game of leapfrog. To move forward, the player has jump over the back of other players. In leapfrogging over some of the ‘steps’ that technology took to evolve, the country has very little competition and very little services are needed. Trying to create something out of nothing, or spending a few minutes trying to develop a new gaming system are all conditions of specialization that are sweeping the nation. Surprisingly, Nairobi is home to several gaming companies that have developed video games for smart phones. This facet of Nairobi innovation is fascinating when one considers that cell phones are still a relatively new phenomenon in this African city.
Another field of specialization in Nairobi is social entrepreneurship. Social entrepreneurship is using the skills and mindset of entrepreneurs to work change that benefits society. Startups wanting to establish in the city of Nairobi are surrounded by opportunities to improve the city and their country. Finding new and innovative methods of doing things not only improves on the Nairobi way of life, it emboldens entrepreneurs to capitalize on the solution. By capitalizing on the latest forms of technology, entrepreneurs are developing plans for solving some of Nairobi (and Kenya’s) biggest issues.
Pivot East, a startup community, developed a platform to help the chicken farmers in Kenya. Realizing that farmers were spending a majority of their day keeping watch over their flock of chickens, developers created an app for their smart phones that tracks the chickens. Innovation driven by problem solving offers a fresh approach to technology and often can be applied to other types of problems. In a rapidly advancing tech market, the more creative the city, the more creative solutions they develop.
STARTUPS TO WATCH
Craft Silicon: A software firm with an estimated value of over $50,000, Craft Silicon develops software applications. Banking, microfinance, electronic payments and success stories are all a part of the startups’ offerings. As an electronics payment manager, they have been working with over 200 clients to provide secure transfers of funds.
Ghafla: A rise in celebrity gossip and speculation have driven Ghafla to the top of the startup sites to watch. With over 100 clients and the distinction of being banned at universities, this celebrity entertainment site is finding out what people want to talk about.
Ushahidi: A crowd-sourcing platform, Ushahidi offers support and assistance to locations affected by natural disasters. Through technology, Ushahidi sends out alerts and texts to notify people in the area about the disaster and how it can affect a part of daily life.
M-Farm: Turning towards the farming culture of Kenya, M-Farm offers farmers access to market prices and allows farmers to group together to receive group purchasing power.
M-Pesa: A mobile payment processing app, M-Pesa allows users to send and receive payments from their mobile device. Revolutionizing the economy of Kenya, M-Pesa allows users to perform daily tasks, such as paying for taxi service, meals etc.
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