Technology is changing the way people live and in Africa, innovators are living on the edge to create solutions for everyday problems and challenges.
As the Silicon Savannah, Kenya has stood out not only because of its innovations but also due to the attraction that it has become to investors.
In early October, Kenya was ranked alongside Singapore, the Republic of Korea, Brazil and Israel as a country that is an innovation hotspot attracting entrepreneurs and start-ups from around the globe.
The World Economic Forum (WEF) has featured these five countries based on how each government has developed policies to support the tech ecosystem within their jurisdiction.
For perspective, the start-up scene on the continent has been progressively dynamic over the years where the total investment in start-ups in Africa crossed the US$2 billion mark in 2019.
Africa is witnessing a growing population which is increasingly adopting the use of mobile devices. With this expansion, numerous digital start-ups are thriving.
Kenya, which is commonly referred to as the investment hub of the East African region, remains true to this moniker when it comes to tech investments and the attractiveness it offers the sector.
With the success stories of mobile money transfer M-Pesa the country remains at the heart of Africa’s start-up success story.
Why Kenya succeeds in attracting investment
The East African nation has English as its native language and also boasts of a large pool of talent from numerous universities. According to WEF, the country is attracting a number of start-ups to base their headquarters in Kenya.
As a key enabler of any tech project undertaking, reliable internet and an excellent online payment infrastructure are among the reasons Kenya remains an attractive investment hub, according to WEF. Most payments are centred on M-Pesa which allows many mobile-based business models to thrive.
The government has also embraced innovativeness and supports entrepreneurs who are growing and scaling their ideas through the Enterprise Kenya initiative. The initiative is spearheaded by the country’s ICT ministry.
According to the ministry, Enterprise Kenya which commenced in February 2015 is a national accelerator to catalyse innovations and provide entrepreneurs with needed support in their innovation journey. Its role is that of a connector, investor, service provider, regulator and industry catalyst to the entrepreneurs in their pursuit to grow and scale their businesses. The initiative is intended to drive the agenda of “Buy Kenya IT, Build Kenya IT, To Build Kenya.”
WEF notes that Kenya is believed to be one of the more attractive emerging markets for early 5G deployment. The Kenyan government has also been ambitiously pursuing plans to create a so-called Silicon Savannah. Through this, the country hopes to generate 2 per cent of GDP within a decade.
The hindrance to the tech ecosystem’s growth is, however, Kenya’s labour laws. WEF notes that there is room for improvement since the laws are not always well-suited to serving start-ups.
Currently, there is a lack of start-up-specific policies around founding and funding but the Kenyan Senate in September this year proposed the Start-up Bill 2020. The Bill is meant to stimulate the interests of Kenyan entrepreneurs and investors interested in the region. The Bill supports incubators more directly allowing the establishment of incubation facilities at the national and county levels of government.
Counties are expected to establish national and county incubation policy framework for the development of the business incubation sector and start-up system. The Bill also seeks to govern interactions between the key players including government, start-ups, incubators and investors while aligning to the Enterprise Kenya’s mandate of linking start-ups with public and private investment, and research and development institutions.
Continent-wide, Kenya was ranked second in Africa both in the total amount of funding received by start-ups and the number of deals as of 2019.
Partech’s 2019 report on Africa’s tech start-up sector showed that the continent registered significant increases over 2018 at a total of US$564 million in funding. This was a 62 per cent rise in comparison to the previous year. The growth and funding were spread over 52 deals.
Specifically, the most attractive sectors were in fintech, off-grid technologies and enterprise while healthcare, commerce and the connectivity sectors followed closely behind.
The Partech report released in January highlighted that Nigerian tech start-ups were quite successful having attracted a record high of US$747M in venture capital (VC) investment. This accounted for 37 per cent of all funding in the sector on the continent. Egypt also registered an accelerated growth rate as it broke into the Top 3 countries both in terms of deal count (+147 YoY) and deal volume (+215 per cent YoY).
With the fintech sector explosion, Tidjane Dème, the General Partner of Partech, explained that the segment was attracting more digital players which enabled start-ups to serve the section. He said that this was one of the reasons that VC investors now have a much larger pool to play with than the traditional private equity investors did before.
“We’re seeing the latter come in into smaller tickets and into the tech space, trying to find interesting opportunities,” he added.