Starting a Business in Kenya: Market Analysis

Facts (as of 2012):

GDP – USD$40 billion

GDP growth – 4.6%

GDP breakdown – Services: 61% / Industry: 14.8%/ Agriculture: 24.2%

Inflation rate – 7.4% (2014)

Pros: Highly beneficial geographical position/ Regional financial centre/ Forthcoming monetary union/ Well-educated labor/ Growing government support/ Strong mobile market/ Diversified economy/ Highly social community/ Strong diaspora

Cons: Security issues/ High unemployment/Large population remains unskilled/ High levels of corruption/ Lack of legal redress/ Highly culturally diversified/ Significant poverty

The Kenyan Market

Thinking of expanding into untapped markets? Be sure to have a good analysis of what exactly are the different advantages and disadvantages of the Kenyan market before diving into Iran. Here, we look into some of the pros and cons: 

Market Analysis – Pros:

• Due to its geographical position, Kenya is one of the most crucial and reliable logistical conduits into East Africa, positioned on the Indian Ocean and with access to key shipping lanes coming from both Europe and Asia. It also serves as the regional financial hub, allowing more than 70% of all Kenyans to have access to financial services, the highest of all countries in the region.
• Kenya is an excellent market in the East Africa Community, which is a hub of a 150 million people region (Tanzania, Uganda, Rwanda, Burundi, and Kenya) with a forthcoming monetary union that is expected to attract a surge in foreign investments. This monetary union is expected to unfold over the next 10 years, allowing for a steady expansion in its economy.
• As an ex-British colony, Kenya has inherited their proficiency in English and it is widely spoken in business, schools and government. This has allowed for ease in communication with foreign firms and entrepreneurs. With a relatively high literacy rate of 88%, Kenya has the region’s strongest pool of available human resources to tap into. The most recent Global Competitiveness Index of 2013-2014 ranked Kenya as 44^th in its quality of education.  Interestingly, this study shows that, as a result of a strong public education, a poor child from Kenya would be more likely to succeed than a wealthy child from Tanzania or Uganda.
• Although Kenya does not have a long history of the government supporting startups, the government has recently started developing initiatives to help establish a conducive infrastructure. Recent projects include a giant tech city “Konza city” dubbed the “Savannah Sillicon” as well as legislative overhauls, such as the presidential directive that 30% of public tenders be reserved for companies started by youth (below 25), women entrepreneurs or people with disabilities. Such a definition is naturally favorable for young startups and will open up opportunities for government contracts. The IMF has recently praised the Kenyan government for its strong fiscal discipline that has kept inflation in check, allowing it greater access to international financial markets.
• The mobile market has also grown significantly, with mobile subscriptions rising from 10 thousand to 3 million since 1998.  The growth of mobile money has also resulted in Kenya being the foremost country in the world in terms of mobile money technology. This is definitely an interesting area to look at for any startups looking at the growing market of mobile payments or e-commerce.
• The Kenyan economy is also very diversified, with strong growth in its horticulture, financial, ICT, transportation and tourist industries. With its strong diversified economy, it has become the main centre and headquarters for many industries in the area. At the same time, this opens up many innovation possibilities in the various different industries. In the ICT (Information/Communication Technology) industry alone, the Kenyan market has grown to 500 million USD.
• For any startups leveraging on the power of social media, Kenya is an excellent market to leverage on the existing social community. A unique feature of Kenya’s economy being the large cooperative & sharing economy that accounts for 42% of GDP. This sharing economy takes place in the form of chamas, something we covered here. It is in fact this phenomenon of chamas that have contributed to the success of mobile money in Kenya. As a result, there already exists a highly social base that is susceptible to technology and monetization. Startups would do well to pay a close attention to this social market when in Kenya.
• With roughly 8% or nearly 4 million Kenyans currently in diaspora, their potential to the economy is not insignificant. In 2013, roughly $1 billion USD was remitted back to Kenya, growing at roughly 11% every year. This has provided a steady source of income for the domestic population, increasing their disposable income and ability and willingness to engage in social connectivity.

Market Analysis – Cons:

• With security issues (Somali & South Sudan nearby) and the recent Westgate terrorist attack, security remains a tangible concern for residents of Kenya. Property crime and violence are major concerns and have become another unavoidable cost of doing business for companies in Kenya. Most expatriates opt to live in gated communities or shared accommodations, which are either expensive or have very basic facilities.
• Although the cost of skilled, educated labor in Kenya is high by developing world standards, it is relatively abundant in comparison with neighboring countries. Roughly 500,000 youths graduate from various tertiary institutions every year. However, due to a mix of inexperience, corruption, and nepotism, roughly 75% of these youths remain unemployed. Furthermore, a large portion of the young population (35 and under) still remain  relatively unskilled, and subside in an employment environment that offers few opportunities.
• As mentioned above, corruption remains a big problem in Kenya. A recent review by Transparency.org ranked Kenya as 136th out of 177 countries in terms of its Corruption Index. This is especially so in the government sector, which would pose a problem for companies seeking public tenders. However, the latest legislation is a step in the right direction and Kenya has made great strides, coming from the 154th position in 2011.
• There is also the high probability of a lack of legal redress in the case of any disputes. Besides the aforementioned scope of corruption, there is also the tricky issue of judiciaries that may view that foreigners who carry less legal weight than a local party.
• Although Kenya has the 7th largest population in Africa, the opportunities for market expansion may not be as wide as expected given that Kenya is a widely culturally diversified country. The largest ethnic group, the Kikuyu, consists of merely 20% of the population. Furthermore, achieving a successful strategy in Kenya and/or East Africa does not necessarily mean success in other parts of Africa due to the wide range of cultural and political differences. Any companies eyeing market expansion in Kenya should thus be aware of these cultural differences and aim for less cultural-centric marketing strategies.
• One challenge companies should have in mind when approaching the Kenyan market is that a big proportion of the country remains severely poverty stricken. In 2011, 3.75 million Kenyans required emergency food aid and another 5 million were food insecure.