The Kenya Business Scene
Of all the places I’ve been to on my East African tour, Kenya has been the most business-y.
Nairobi itself is quite a metropolis, with recognisable multinational names tagging onto tall, glass buildings around the city. What’s more, there’s a pretty busy start up culture meaning it isn’t uncommon to see an office with exposed brickwork, foosball tables and a beer fridge.
Kenya shares a similar demographic to the other East African countries, namely a young population with the majority of people living in rural areas
That said, it does have more of an “urban elite” who have generated wealth from businesses in the country and are more than happy to spend it.
This section (or indeed the whole of society when they get the chance) enjoy being seen spending money: the more Western the better. People have told me that Kenyans are fiercely price sensitive on most everyday products and services, but will easily spend hundreds of dollars on cocktails in a swish bar (as long as the moment is captured on Instagram).
Most of the companies described in this post are ones that I have met and interviewed for The East Africa Business Podcast, so there is a natural bias towards those who I was able to arrange a time with.
There’s a rough grouping of the businesses mentioned here which each give a flavour about what is happening in the country.
Stuff from developed countries
One of the main things that Nairobi has shown is that Western companies are able to have a presence.
Malls are a big thing, and almost all have a KFC or Subway tagged on the end. Browsing the shelves of the Tesco-esque supermarket Nakumatt, it is possible (at a premium) to purchase pretty niche international goods, such as Dorset Cereals, Hobnobs and boiled chicken feet from China.
Not only that, where an obvious multinational product or service is missing, companies have begun to emerge to plug the gap. All will have undertaken localisation to adapt to the market, but with most they describe themselves as “<> for Kenya/ Africa”.
The Nairobi office opened a couple of years ago and it has quickly become pretty ubiquitous throughout the city. Not only because they offer convenient work for drivers, but because it is cheap for consumers.
The story goes that when Kenyan taxi drivers would quote a price to take you across town, they were just saying what their friend would offer/ what they’ve always charged. With only being able to pick people up from a certain station in town (and a lot of time lost to traffic) this meant that the driver was often “underutilised” and so would charge a high price to take someone on a trip to cover this time when he wasn’t working.
A lot of consumers would grit their teeth, or find this price too prohibitive to take a taxi, and therefore rely on more unreliable forms of public transport, or a less comfortable motorbike ride.
When Uber came to town they crunched some numbers on what the actual cost of petrol, time etc needs to be if drivers could pick people up from anywhere in the city. Long story short: much cheaper.
This opened up the market to private transport leaving non-Uber drivers begrudgingly stuck trying to hustle people into their cars, or relying on a market not comfortable with tapping an app.
From many discussions with Uber drivers a lot of them don’t own their cars, but instead lease them from a person/ organisation and, if they’re Uber stats are good enough, they can get preferential financing terms to buy their own.
“TaskRabbit for Kenya”
Lynk is a horizontal marketplace. By this I mean that they offer a wide variety of services (cleaners, carpenters, masseuse) rather than just one type of service (such as tutoring).
80% of the Kenyan workforce is engaged in the informal sector where it is very difficult to build credibility beyond your personal network and leverage this to find consistent work.
Adam and Johannes have set up Lynk to give consumers assurances around booking a reliable tradesperson and have a pretty visionary outlook on the benefits of collecting data on the type and quality of jobs in the region.
Both of these multinational franchises have a visible presence in the city.
A franchise essentially means that there is a local business adhering to international standards so that (more or less) a consumer could step in and order a Bargain Bucket and experience the same customer service, decor and taste whether they were in Nairobi or Northampton.
The challenges with setting up a franchisee in a new place is whether the local business have the means to reliably give the jet-setting customer the same experience as they would in, say, the UK or the US.
This comes down to everything from finding producers to make the plastic tables (or import them, which often has costly tariffs) through to a rigorous supply chain to ensure that the lettuce tastes the same.
On the demand side, it also requires a population that has enough people with disposable income to spend $5-$10 on a fast food meal.
These factors have meant that whilst KFC and Subway are feeding the middle class, McDonalds hasn’t yet entered the fray…
Sticking with food, there are a few companies offering the “last mile” delivery of food from outlets or restaurants.
From what I gather it’s the same model as Deliveroo etc. whereby the consumer orders from the app and a motorbike picks up the food and pops over to drop it at your door,
Word on the street is that beyond the expat community there isn’t tons of demand. If you’re a Kenyan splurging $30 on a nice meal, why eat it at home where no-one can see you?!
Africa Internet Group
This is an extension of Rocket Internet whose business model is premised on finding ideas that work, cloning them into new markets, and ruthlessly testing them to see if they work or not.
Their flagship brand in Africa is Jumia which covers many different areas such as food delivery, property listing, jobs boards and marketplaces.
I’ll be honest though, compared to Uganda and Rwanda I have not noticed them nearly as much in Kenya.
“Spotify for Africa”
Whilst the consumer side of Spotify (the music streaming service) seems like it should be applicable regardless of location (open the app and start listening to music), the musician side is dependent on location.
The Spotify “sell” is that they will pay artists each time their song is played, which requires building relationships and signing contracts.
In the UK and the US artists have been grouped together into “record labels”, meaning the Spotify lawyers can have one meeting, and then onboard the music of hundreds of artists. Do that a few times and you’ve got a good spread of the musical offerings.
In Kenya (and indeed the rest of Africa), record labels aren’t a thing
There was never a compelling business case for “signing an artist” because in an environment where little is spent on music, it would be nearly impossible to make back your money if you’re just taking a percentage of (scant) earnings.
Because of this, many artists are independent and manage themselves. Spotify probably consider all the meetings that would be necessary to get a good selection of African artists and think “we’ve got more pressing stuff to do”, leaving the market open for someone else to undertake the task.
That company seems to be Mdundo (which is the Swahili word for “beat”) who are going around and signing up the fragmented artist base across the region as well as persuading consumers to move over from unreliable pirated music sites to pay for a good quality streaming and download service.
Once Mdundo get a decent catalogue and can validate enough people in Africa will pay to listen to music, Spotify will probably just come in an buy them, to save the effort of doing it themselves…
“Uber for ambulances”
This was definitely one of the most interesting podcast interviews I have done.
There is no 999 in Kenya where you can request an ambulance because it is a private sector industry and the companies (50 of them) have different phone numbers.
When you’re in an emergency you have to hope that when you call one of them they can get across town, even if another ambulance is sat around the corner twiddling their thumbs.
There have been stories of expectant mothers’ waters breaking in the back of an Uber, as that’s a quicker way to get someone to the hospitable than rely on the “emergency services”.
Anyway, in terms of being “stuff from developed countries” I was amazed that there was even an opportunity here.
If there’s one area I’ve found where there’s an insatiable demand, it’s for learning things.
Whether this is across programming, agricultural best practice or workplace manners, it has been a recurring theme throughout the people that I’ve spoken to in the country.
Here are some companies that are looking to supply this education.
“Coding school for Kenya”
I’ve noticed a trend where companies have found it difficult to fill positions in their company, owing to a skills gap. Applicants are hungry to work, but aren’t compatible with the particular working environment.
Therefore “traditional recruitment” companies that look to scout out talent and place them in new companies find that there’s a limited pool of people who they can choose from.
Some entrepreneurs have therefore taken a step back and decided to undertake a training aspect too, thereby growing the pool of capable candidates, and giving students relevant skills for the workplace.
In terms of growth areas, computer programming is going nuts and so Audrey created Moringa School to give people intensive training (material borrowed from a top school in the US) on how to build websites and create apps.
“Soft skill corporate training”
The education system in Kenya is apparently based off rote learning. Students have facts and figures drilled into them which are then regurgitated onto an exam paper in the hope of getting an A.
This causes problems when people then enter the workplace and are confronted with a series of real-world problems, like “my supplier has just said she can’t fulfill an order”.
When a problem like this is presented to someone whose education was from, say, Europe they would’ve be taught to think critically about problems like this from their school days, and so would try to understand the context and importance, and then theorise a few solutions.
Apparently schools in Kenya haven’t traditionally taught this methodology of approaching a problem and so when a problem is put in front of them as workplace adults, their first reaction isn’t to pro-actively find a solution. It’s not that people are being unintelligent, it’s more that years of never being exposed to this way of thinking has meant (understandably) that it’s not second nature.
The good news is, this sort of stuff can be learnt. Spire runs training programmes with corporate clients to give their workforces an understanding and appreciation of the things they are capable of if they put their mind to it, including customer service, personal branding, and communication.
“University over mobile”
To me this is a textbook example of using tech to overcome “legacy infrastructure” such as learning from, well, textbooks.
OneUni partner with universities to convert their courses into content which can be learnt over mobile devices, therefore allowing people to get a degree independent of their location.
They’re just at the beginning of their journey (when I interviewed Brett their first course, a BA in Education, was launching that day) and see this as a way of broadening access to education where before there were physical constraints.
An issue in rural areas is that it’s difficult to get WiFi. With internet connectivity comes the ability to access a whole host of useful educational material which, as we’ve gathered, people are super keen to do.
BRCK is a durable piece of kit which not only emits WiFi from some of the most remote parts of the world, but also has a related educational course which schools can tap into using their device.
Another instance of tech = accessibility
Opening up markets
This next couple of companies share characteristics in that they utilise financing (i.e. giving someone a lump of money up front and then getting them to pay it back later) to open access to particular products or markets.
They provide technology that gives manufacturers of products the ability to ‘switch them off’ remotely if someone stops paying.
Imagine that you are a seller of solar lamps. Right now the only people who can buy your products are those with cash to pay up front which, if you consider the demographic who would benefit most from them, are rarely in the position to stump up $40 right away.
You could just give the person the lamp and then ask them to pay back installments as and when they can, but that soon becomes pretty difficult if you’re keeping track of hundreds of payments and also once someone has the lamp in their hands, they lose the incentive to pay it back.
By harnessing the technology to switch off products means that if someone stops paying, the product stops working and therefore becomes useless. Back comes the incentive to paying back the manufacturer…
This technology behind remotely switching off products is what is used in a lot of solar companies (including BBOXX) and has meant that products previously reserved for those with ready cash can be enjoyed others.
This is another financing company looking (for now at least) specifically at the agriculture supply chain.
The idea of working capital is that there is a time delay between when you pay to produce a product and when you get paid.
Imagine you are a tinned tomato producer.
You have costs involved with making a batch of 100,000 tins of product for an order that comes through from a supermarket. Let’s say it costs $10,000 to complete the order (made up of buying the metal, the tomatoes and running the machinery) and the order is for $20,000. The costs go quickly meaning your bank balance goes down by $10,000
The money from the supermarket is likely going to take 60 days to reach your bank account, meaning you have two months where you’re short on cash.
If another supermarket comes in and says “I’d like some tinned tomatoes too please” then, as a producer, you’re stuck because you don’t have the money to go out and buy more tin and tomatoes. Therefore you have to let the order pass by meaning your business can’t grow.
Essentially Umati Capital look to bridge this gap.
They will buy a “purchase order” from a manufacturer meaning that they immediately have more cash in their business to continue/ expand production, rather than having to be stop-start and waiting for the cash to clear when contracts have been signed.
They’ll give the producer the $20,000 and then, after 2 months, ask them to repay, say, $20,500. Doing so means that the producer can earn additional profit from the second order, to more than cover the costs of the financing.
Moving from the financing aspect to the more nuts and bolts of agriculture we get to companies that are looking directly at improving the livelihoods of people and businesses within this huge sector of the Kenyan economy.
(Side note: is there a farming equivalent of “nuts and bolts”? “seeds and weeds”?!)
Farmers from around the country send SMS questions and answers to each other when they have a problem.
This could be things like “when is the rain coming?” to “how do I grow cabbages?” and (according to Dennis, the country manager) a lot is managed to be learnt from a series of 140 character messages.
Tracking the data of what types of questions are being asked provides value to the farmer co-operatives who can improve the services they give to their community.
A big thing that has come throughout understanding the agriculture supply chain process is the varying prices that farmers need to accept when selling their produce.
Similarly, whenever one party holds a lot of power over another, they have a big sway over the market price meaning the smaller party often must accept difficult terms on what they buy/ sell.
Once instance of this is the street sellers of tomatoes, onions and bananas who are present on almost every corner. Each morning they travel to a central depot buy their lot and then hope to sell enough to cover the costs for tomorrow.
Twiga Foods has a big delivery truck that drives round and delivers this food each day, taking orders for the next and (because they are the ones with purchasing power buying it all in bulk) are able to negotiate a better price.
This is a company that does food processing.
Now, growing up in the UK, “processed” food always had negative connotations, whereas in East Africa, it is the pièce de résistance. Whenever a raw product is processed it means that value is added, and the closer that can be to the farmer, the more it makes sense to pay them a higher price.
If avocado is sent over oceans to be turned into guacamole then transport (and import duties) make up a lot of the cost, meaning to have an affordable dip, the input costs “need” to be low.
If the guac is made down the road then these additional costs are not incurred giving more power to the farmer and hence they can be afforded a higher income for their produce
Anyway, rather than guacamole, Azuri Health are doing this with dried fruits: buying mangoes and pineapples, and then drying and packaging them in Kenya. The money shot happens when they can export, though that is easier said than done…
35% of flowers in the EU come from Kenya.
It’s a huge “cash crop” for the country, and whilst some aspects of agriculture could be described as backward or underutilised, this can’t be said for the flowers.
It’s a mightily efficient operation, with greenhouses kilometres long irrigating from one of the lakes to the north of Nairobi. They’ve been going for years and with all kinds of refinements it is possible to get a rose cut in Kenya to sitting in a bucket of water in a London supermarket in less than 22 hours.
This article explains some more.
With all these businesses that are buzzing around, and plenty more looking to start, there are a number of organisations that have sprung up to help.
This is the crown jewel of the Kenyan startup scene.
It started a few years ago as one of the first of its kind in terms of people meeting up to do startup-y stuff and since then has evolved into a co-working space/ general consulting firm for all things tech.
Last month, Mark Zuckerberg was in Kenya for the day, and made efforts to check out iHub on his whirlwhind tour.
I’ve been to a few a co-working spaces around the world and these are up there with the trendiest.
There are a couple of sites in Nairobi with all the hallmarks of a funky, collaborative work environment: lots of natural light, fresh coffee, hunks of art dotted around the place, and motivational quotes written all over the walls.
Both are management consultancies based out of Nairobi.
As well as undertaking big research for organisations like the World Bank etc. they also do short term projects for start ups and emerging businesses.
Doing so acts as a way to “kick the tyres” on these companies which they then share with investors looking for ways to de-risk the opportunities that they go into.
Several sources have cited the patience and capital required to start a business in Kenya.
Compare this to Rwanda (where they’re comparatively giving out business licences in cereal boxes) and you can see why this and a reportedly corrupt environment could dissuade entrepreneurs from setting up shop.
I’ve not been too deep into government dealing so far, though plenty of people have said it’s something that takes more effort than you imagine. Also, when it comes to moving produce across countries, there is apparently a culture around “I’ll have a bit of that please” when it comes to border officials wanting to get a cut.
Before coming to Kenya I’d been primed to expect to be more advanced and, well, it has been.
A lot of people have smartphones and are pretty open when it comes to trying new technology. The conversations I’ve had with people here have been pretty forward looking (e.g. using drones to assist market research) something that never came up when speaking to people in Rwanda and Uganda.
Interestingly though, agriculture has played a much more significant aspect than I thought which, coupled with the major port of Mombasa, puts it in a good position to continue its development.
The general sluggishness that people quote with regard to public sector relations is a bit of a tarnish, however on the whole, the business scene is pretty happening.