Driving the Dubai-Nairobi digital highway [Opinion]


Driving the Dubai-Nairobi digital highway [Opinion]

I just came back from my second trip to Kenya in the past year and it is striking, for all the significant cultural, historic, geographic differences, how much it shares with other growth market startup ecosystems.

To my sisters and brothers in the Middle East, let me know if this sounds familiar:

  • Low, relative to the West, cost of entry in starting an enterprise – say $25,000 to $100,000.

  • Increasing early seed and A-stage financing, but near nothing at growth stage.

  • Legacy laws, regulations and duties causing unnecessary friction in the easy movement of people, ideas, goods/services, and capital.

  • A population two-thirds or more under the age of 35 yet limited availability of experienced human capital.

  • Cultures that remain risk-adverse and failure carries a stigma.

  • A disproportionately large number of women entrepreneurs as compared to the West.

  • Great opportunity in being first.

In many ways, the Kenyan ecosystem remains a few years behind the growth trajectory I’m seeing in the Middle East, but in a few key ways it’s also positioned to move out ahead.

Kenya’s tech ecosystem is first and foremost about mobile. The story of M-Pesa, the mobile payment facility through which nearly half of the country’s economy passes, is well known. But it is dramatic to see first-hand: we visited a massive wholesale fruit market and saw it in the hands of thousands of merchants.

Mobile access is all but universal, and smartphone penetration is growing rapidly. No surprise that one friend told me he has counted 69 – sixty-nine! – fintech startups alone in Kenya; opportunity clearly abounds here, and across Africa, where so many are underbanked and the secure movement of cash is a revolution.

Digital Kenya

So much of this has been captured in a comprehensive new book Digital Kenya by Bitange Ndemo, University of Nairobi lecturer, and Stanford scholar Tim Weiss.  It’s a must-read because they underscore not only the state of play, and challenge, in Kenya, but how the latest technologies are helping entrepreneurs leapfrog to new solutions.

Think of the impact, they note, in reducing “transaction costs in digital payments, possibly through bitcoin and the block chain solutions”.  

They say trade finance and credit for small businesses in informal markets are areas of opportunity, and companies that develop alternative ways to assess credit worthiness, such as via mobile phone top ups, will have a big role to play. Digital identity solutions can cut out corruption and costs for job seekers, and redesigning supply chains, especially in agriculture, can create better functioning markets.

Ndemo and Weiss underscore the strong sense of community and the collective mind set: "For the West, innovation stems from solving concerns revolving around the individual. In Kenya, the innovations that have been built are to solve non-individual problems."

In this mindset social is first, business comes second.  Your networks matter.

They describe a distinct and ubiquitous “hustling mentality” that cuts across all income levels, religions, ethnic lines and industry sectors. We were told the average Kenyan household can have six different sources of income and this reflects how problems generally in society there are solved.   While Westerners often look to solve one problem sequentially, in Kenya there is “a hedge your bets mentality" where people try to solve multiple challenges and then see which is most lucrative.

Refusing the free money

The role of non-government organizations (NGOs) in Kenya and other parts of Africa are also unique and, many entrepreneurs think, problematic.  

Kenyan entrepreneurs are at the forefront of the
region. (Image via Christopher Schroeder)

Erik Hersman, the founder of one of the largest shared work spaces in Kenya Ihub and the ed tech and internet access startup Brck tells the authors: "We have one of the highest count of NGOs per capita in the world... [while bringing in] money for some things… this bastardizes the market for other things. A whole realm of craziness that you would not find in other places."  

NGO money for startups can seem like useful, equity-free capital. But often there are the unintended consequences of strings attached, such as if an NGO’s agenda doesn’t sync with the entrepreneur’s, or if ‘cheap money crowds out disciplined investors, or when they simply move on after a few years.  

Scaling the big ones

Where does one go from Kenya? Westerners tend to think in terms of geographic proximity, but ‘East Africa’ isn’t a unified market per se.  

A new acronym - KINGS: Kenya, Ivory Coast, Nigeria, Ghana and South Africa - indicates that people are predicting growth in Africa will come from wider connections rather than neighbors.

When I asked most entrepreneurs in Nairobi where they’d scale to next, should they succeed in Kenya, invariably they say Nigeria’s largest city Lagos, which is 3,300 miles away. Cities, as much as national borders, will define so much activity in Africa as in other growth markets.  Others see an opportunity for pan-African startups.  

One ecosystem builder noted "our ideal entrepreneur has a Nigerian hustle, a Ghanaian integrity, and a Kenyan smoothness".

‘E to e’

Most of all I see remarkable companies who solve very thorny, ‘hands dirty’ challenges and then layer technology on top of it in order to scale. In an article I wrote for Recode last spring I tell the story of Twiga, which is mastering how to affordably and repeatedly over the day bring produce to more than 48,000 fruit vendors in Nairobi, saving them multi-hour walks and spoilage.  

In its first iteration it solves a significant logistics challenge, but universal access to devices will allow them to make ordering more efficient and include data to offer credit. What market in Africa, Southeast Asia or the Middle East would not benefit from this?  

The story of growth markets generally will be what Endeavor Global co-founder Linda Rottenberg calls “e to e” -- emerging market to emerging market -- where shared experiences and market needs share similar needs.

I believe we are in the earliest days of new connections among growth market tech ecosystems, only compounded as the West turns politically inward. I see enormous bridges between the Middle East and East Africa, and am excited to see what the Dubai/Nairobi corridor will yield.  

Feature image via Christopher Schroeder.

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