kenya – the promise of a new east? future watch report, april 2015
TRANSCRIPT
Kenya – The Promise of a New East?
An Introduction, May 2015
Contact information
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Amatka – Insight Africa Services
Amatka (Pty) Ltd is a South African company founded and owned by Finnish entrepreneurs based in
Cape Town. Amatka provides knowledge and views of business opportunities in Africa with focus on
Southern and Eastern Africa. Insight Africa also supports networking in these countries.
Tekes – the Finnish Funding Agency for Innovation
Tekes is the main public funding organisation for research, development and innovation in Finland.
Tekes funds wide-ranging innovation activities in research communities, industry and service sectors
and especially promotes cooperative and risk-intensive projects. Tekes’ current strategy puts strong
emphasis on growth seeking SMEs.
Contents
Introduction ........................................................................................................... 2
Background ....................................................................................................... 2
Purpose ............................................................................................................. 2
Recommended Use and Liability Disclaimer ...................................................... 2
Kenya in a Nutshell ............................................................................................ 3
Political Economic Climate: Business Point of View ............................................... 5
Trade and Investment ........................................................................................ 5
Growth: Drivers and Challenges ........................................................................ 6
Political Economy: Supporting Factors and Challenges ...................................... 7
Key Areas of Potential Growth ........................................................................... 8
Innovation Ecosystems ......................................................................................... 9
Innovation Hubs................................................................................................. 9
Research ......................................................................................................... 10
Private Companies .......................................................................................... 10
Sectors in Focus ................................................................................................. 11
Energy and Environment ................................................................................. 12
Healthcare and Wellbeing ................................................................................ 13
Education ........................................................................................................ 17
ICT, Digitalisation and Mobile Solutions ........................................................... 18
Future ................................................................................................................. 20
SWOT: Kenya ................................................................................................. 20
Scenarios ........................................................................................................ 21
Information Sources ............................................................................................ 22
Front cover picture: The A104 heading to Nairobi CBD 2014 by Nairobi123
(Wikipedia)
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Introduction
Background
This report provides, in a nutshell, facts of Kenya and insights into future business
opportunities. The report is based on statistics, recent articles and publications, and
expert views.
The report has been prepared by an international team coordinated by Amatka (Pty)
Ltd, a private company owned by Finnish entrepreneurs, based in Cape Town, South
Africa. The report is part of Team Finland’s Future Watch Program in Africa, called
“Strategic Partners for Innovation Actives Africa Services”, and coordinated by Tekes,
the Finnish Funding Agency for Innovation.
The focus of the process is on the four most promising (defined by size, growth and
ease of doing business) Sub-Saharan African countries: Kenya, Nigeria, South Africa
and Tanzania. Sectors in focus are: ICT, mobile & digitalisation, education, health &
wellbeing, energy & environment.
Elements of Strategic Partners for Innovation Activities Africa Services are: Continent
Report Sub-Saharan Africa, Country Reports (Kenya, Nigeria, South Africa,
Tanzania), Alerts: arising signals for the future, Updates: frequent summaries of
alerts and Contact Database.
Purpose
The reports, and this service, focuses on issues, facts, signals and insights that are
likely to play a role in doing business in, for example, Kenya’s medium term future (2-
5 years). This report DOES NOT provide sales leads or provide a picture of how to
establish operations in Kenya.
Using present facts and information, combined with future insights, signals, and
scenarios, the report suggests possible futures and the related implications for
Finnish SMEs interested in doing business in Kenya.
Recommended Use and Liability Disclaimer
Before reading this report, it is recommended to get familiar with the Sub-Saharan
Africa Continent report. Additionally, it is strongly recommended that the readers
always check the latest information; situations in Africa can change overnight.
Amatka has made every attempt to ensure the accuracy and reliability of the
information provided in this report. However, the information is provided "as is"
without warranty of any kind. Amatka does not accept any responsibility or liability for
the accuracy, content, completeness, or reliability of the information contained in this
report. No warranties, promises and/or representations of any kind, expressed or
implied, are given as to the nature, standard, accuracy or otherwise of the information
provided in this report nor to the suitability or otherwise of the information to any
particular circumstances. Amatka shall not be liable for any loss or damage of
whatever nature (direct, indirect, consequential, or other), which may arise as a result
the use of this report, or from use of the information in this report.
3
Kenya in a Nutshell
Kenya is often referred to as
Eastern and Central Africa’s
financial, communication and
transportation hub. The city of
Nairobi, Kenya’s capital, is the
largest metropolis in East Africa,
and is home to the Nairobi Stock
Exchange (NSE), one of Africa’s
largest stock exchanges.
History in Brief
The first European to reach Kenya
was Vasco da Gama in 1498 and
the Portuguese dominated the coast
of Kenya for two centuries. In 1885
the European powers divided up
Africa between themselves and
Britain was allocated Kenya. In the early 20th century while settlers flocked into
Kenya taking the best land, the natives were forced onto reservations. This
resentment eventually boiled over into the Mau Mau uprising in 1952 and ending in
1960.
Kenya became independent in 1963. In 1964 Jomo Kenyatta became president of
Kenya and Kenya joined the Commonwealth. The late 1960s and 1970s were years
of prosperity for Kenya. After Kenyatta died in 1978 Daniel arap Moi became leader
of Kenya. In 1982 he banned opposition political parties and in 1987 he changed the
constitution of Kenya to strengthen his powers. In 1991 Moi was forced to allow other
political parties to form in Kenya. Despite the opposition he was re-elected in 1992
and in 1997. Then in 2002 Mwai Kibaki became leader of Kenya and in 2003 he
introduced free primary education. In 2013 Uhuru Kenyatta became president of
Kenya.
Kenya Today
Kenya is a diverse nation of 42 distinct ethnic groups. There are a total of 69
languages spoken in Kenya, Swahili and English serve as the two official working
languages.
Kenya’s political context has been heavily shaped by historical domestic tensions and
contestation associated with centralisation and abuse of power, high levels of
corruption, a more than two decades long process of constitutional review and post-
election violence. The approval of the new constitution in 2010 and relatively peaceful
elections in March 2013 are milestones constituting steps forward in Kenya’s
transition from political crisis.
Kenya has the largest and most diverse economy in East Africa, with an average
annual growth rate of over 5% for nearly a decade. Its entrepreneurship and human
capital give it huge potential for further growth, job creation and poverty reduction.
The recent discovery of oil and other mineral resources creates great potential for the
Kenyan economy.
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However, Kenya remains a highly unequal society by income, by gender, and by
geographical location. Rapid population growth is another major challenge, further
complicated by high unemployment rates especially among the youth. More than
70% of Kenya’s population are below the age of 30 and the population under age 14
alone amounts to 43%.
Figure 1 provides some of the figures at a glance as well as distances between some
other cities.
Figure 1. Key Indicators - Kenya
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Political
Economic
Climate:
Business
Point of View
Trade and Investment
With growth continuing in infrastructure, agricultural production, manufacturing and
other industries, Kenya is poised to be among the fastest-growing economies in East
Africa according to a World Bank statement in 2015.
However, the overall positive outlook is not without risks. Tourism has been hobbled
because of concerns about security. Also, sluggish external demand for exports and
declining production for export is widening the current account deficit. As a share of
GDP, Kenya's manufacturing sector has been stagnant in recent years. Low overall
productivity and large productivity differences in firms across subsectors point to lack
of competition.
Kenya’s largest export partners in 2012 were Uganda, Tanzania, Netherlands, UK
and United States. The largest import partners in 2012 were India, China, South
Africa, Japan and UK. See Figure 2.
Figure 2. Kenya’s export destinations and import origins 2012 (source:
Observatory of Economic Complexity/United Nations COMTRADE)
Figure 3. Trade between Finland and Kenya 2012 (source: Observatory of
Economic Complexity/United Nations COMTRADE)
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Kenya has become one of the largest recipients of Foreign Direct Investment (FDI) in
Africa ($514 billion in 2013). This rise is related to investments, mainly Chinese, in
the mining and hydrocarbons sectors. In addition, many western companies have
relatively large scale operations there, such as General Electric, who relocated its
African headquarters from South Africa to Nairobi in 2011, and pharmaceutical
company Pfizer and Pepsi-Cola. A Chinese investor has recently started to establish
a project of creating a railroad connecting Rwanda, Uganda, South Sudan and Kenya
for a cost of almost $14 billion. The United Kingdom, the Netherlands, Belgium,
China and South Africa are the main investing countries in Kenya.
In the coming years, the simplification of the conditions for obtaining business
licenses, together with the development of public-private partnerships as part of the
"Vision 2030" strategy should have a positive influence to FDI inflows. Moreover,
most of the sectors are open to foreign investment. In recent years, it is the
telecommunications sector that has attracted most of the FDI. Other sectors
attracting FDI have been banking and tourism.
Growth: Drivers and Challenges
The East Africa Community (EAC) has fast-tracked regional integration and has seen
considerable progress in institutional reforms. Moreover, East Africa boasts much
greater political stability than it has at any time in its recent past. The region has also
seen major investments in both national and regional infrastructure.
Within the EAC, the Kenyan economy is the anchor. Kenya's economy is the
largest in the region and is more dynamic than those of other member countries. The
country's economy is better linked to the other economies in terms of investment
flows and trade. A strong private sector has evolved under relatively market-friendly
policies. More advanced human capital base, its more diversified economy, and its
role as a leader in the information communication revolution in the region, Kenya's
economy is expected to remain strong. The prospects for a strong economy are
boosted by recent institutional reforms that have culminated in the adoption of a new
constitution.
Compared to many other African countries, Kenya has very limited arable land and
rainfall. But it also boasts a sophisticated agricultural sector. Horticulture
contributes the highest percentage of agricultural gross domestic product (33%),
followed by food crops (32%).
Additionally, compared to the region, the country's transport system, including
roads, the Mombasa port (there are bottlenecks though), and the airports, is more
advanced. Kenya, Uganda, and Rwanda have recently started building a
superhighway from Mombasa to Kigali that will ease the movement of cargo through
these countries. Kenya is also the region's major exporter and importer with the rest
of the world.
The adult literacy rate in Kenya is 87%. In comparison to other East African
countries, Kenya has the highest public expenditure in education. Education is seen
to play a major role in increasing productivity and economic growth and reducing
poverty and inequality. The Global Competitiveness Index (GCI) 2013-2014 ranks
Kenya 44th in quality of education out of 148 countries (by comparison: Rwanda
ranks 51st, Uganda 82
nd, Tanzania 100
th, and Burundi 143
rd).
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Kenya's private sector is relatively dynamic, competitive and innovative. The service
sector has been a large contributor to the growth of the private industry in Kenya.
This sector is the largest contributor to GDP growth since 2007 in the country,
according to an International Monetary Fund regional economic outlook for Sub-
Saharan Africa. Kenya has emerged as a technological and financial hub for East
and Central Africa. A major techno-city project is underway in Konza, near Nairobi."
IBM also set up its first African research lab in Nairobi (2013), following the likes of
Google, Microsoft and Intel. Nairobi has during the past five years become the
African home of choice for multinational companies, especially those in the service
sector, looking to grow their presence on the continent.
Another area in which Kenya is doing tremendously well is the mobile money
services sector. The country is ranked number one in the world in mobile money. M-
pesa, the flagship mobile phone banking product, put Kenya at the forefront of mobile
money transfers and mobile banking services. M-pesa's success in Kenya is
attributed to several factors: the need to provide a solution to the high cost of sending
money from one place to another; the presence of a dominant player in the market
(Safaricom), which was able to develop an efficient agent network; and support from
the regulatory body (Central Bank of Kenya), which advocated for regulation to follow
innovation.
Although Kenya has never experienced military rule, and its political environment can
be described as somewhat democratic, the country has had its share of politically
instigated violence along ethnic divisions and tribal lines. Even though elections in
Kenya have been marred by flaws and irregularities, the country is considered to
have a wider democratic space compared to its neighbours.
There are challenges that the country still needs to address, above all poverty,
inequality, and access to health services. Despite relatively good rankings in terms of
education, level of skills remains a challenge. The recent discovery of resources such
as oil, base titanium, coal, and underground water, augur well for the country's future
economic performance.
Political Economy: Supporting Factors and Challenges
Kenya boasts a market-based economy and the most liberal economic system in
East Africa. A market-based system, among its other advantages, promotes
economic efficiency and competition and encourages foreign investment.
The recent planning documents issued by the Kenyan government, the Economic
Recovery Strategy (ERS) for Wealth and Employment Creation and Kenya Vision
2030 (discussed in 2.4), detail strategies that focus on growing and developing the
economy. Vision 2030 in particular aims to transform Kenya to a newly industrialized,
middle-income country by 2030. It is based on three pillars: the economic pillar,
which seeks to maintain and sustain economic growth of 10% per year for 25 years;
the social pillar, which seeks to invest in Kenyans so as to improve the quality of life
in education, health, and housing (among other public goods); and the political pillar,
which focuses on moving the nation forward as one and envisions a democratic
system that is issue-based, people-centred, results-oriented, and accountable to the
public.
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Key Areas of Potential Growth
Kenya Vision 20301 (Swahili: Ruwaza ya Kenya 2030), launched in 2008, is the
country's development programme covering the period 2008 to 2030. Its objective is
to help transform Kenya into a "newly industrializing, middle-income (income
exceeding World's average) country providing a high quality of life to all its citizens by
2030 in a clean and secure environment." Developed through "an all-inclusive and
participatory stakeholder consultative process, involving Kenyans from all parts of the
country," the Vision is based around three "pillars": economic, social and political.
Pillar One: Economic. Priorities are:
Tourism
Increasing value in agriculture
A better and more inclusive wholesale and retail trade sector
Manufacturing for the regional market
Business process outsourcing (BPO)
Financial services
Pillar Two: Social. Priorities are:
Education & training
The health system
Water and sanitation
The environment
Housing and urbanisation
Gender, youth and vulnerable groups
Equity and poverty elimination
Pillar Three: Political. Priorities are:
Rule of law
Electoral & political processes
Democracy and public service delivery
Transparency and accountability
Security, peace building and conflict management
1 Consulting company McKinsey played a big role in developing the roadmap for Vision 2030.
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Innovation
Ecosystems
Kenya is the biggest economy in East Africa, and as such, it’s also a transportation
and aviation hub for East Africa. Talents are flowing in, from and through Nairobi. It’s
a capitalistic country. It’s an English-speaking country. The tech world speaks
primarily in English. The economy is diversified. Tourism, exports, manufacturing and
services make Kenya’s economy a balanced one and allow innovation to stem from
many industries.
Innovation ecosystems are relevant for Finnish companies as at their best these
ecosystems provide vital networks, potential co-operation partners as well as insight
into local market dynamics. Often these key stakeholders and influencers in the
ecosystems are also important entry points to new markets. The innovation
ecosystem has been divided into 5 groups: Investors (both private and public),
Innovation Hubs (accelerators and incubators), Research (Universities) and Events &
Competitions and Philanthropists. See Figure 4.
Figure 4. Innovation Ecosystem Framework in Kenya
Innovation Hubs
A brief history of (tech) innovation in Kenya can be summoned as follows:
2002-2006: The drop in the prices of phones. First undersea cable. The 3G
network was built. First ISP (Africa Online).
2007: M-pesa was born.
2008: The election crisis saw the development of Ushahidi, a project which
crowdsources crisis information through mobile.
2010: “The Ushahidi mafia” facilitated the development of iHub, one of
today’s main hubs for innovators and startups in Nairobi.
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2013: A new “Vision 2030” was approved by the government, with a new
place proposed for Konza City, an innovation cluster out of Nairobi.
In part due to its pro-innovation policy and regulatory environment, Kenya has
experienced significant growth in innovation spaces (private, community driven and
hosted by education and research institutions) since 2009 including:
@iLabAfrica and @iBizAfrica at University of Strathmore
88mph24/Nairobi Startup Garage
Chandaria BIIC at Kenyatta University
FabLab and Computing for Development Lab (C4DLab) at University of
Nairobi
GrowthHub
iHub
m:lab East Africa
NaiLab
Research
The roots of higher education in Kenya date only from 1956 with the founding of
Nairobi’s Royal Technical College, a school that would in 1970 become the country’s
first university: The University of Nairobi. Today Kenya has 52 public, private and
constituent university college institutions with a total student population of 251,000.
Figure 5 lists the TOP 10 universities in Kenya.
Figure 5. List of TOP 10 Universities in Kenya (source: Webometrics Ranking of
World Universities)
Private Companies
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Sectors in
Focus
Many multinational corporations, especially from service sector (IT, finance,
pharmaceuticals) have opened their own innovation hubs or research labs in Kenya.
These companies include Microsoft, IBM, Oracle, Google, Philips, Pfizer, Intel,
Samsung, Cisco and MasterCard, among others. The largest domestic companies in
Kenya are listed in the Table below.
Company Sector Description
Kenya Airways Airline
Founded in 1977 Kenya Airways has established itself
as one of the biggest national carriers in Africa. KLM is
the largest shareholder, with 26% while the Kenyan
government retains 23% in the public-private
partnership.
Safaricom Telecom
The dominant mobile phone and communications
provider in Kenya, with over 18 million subscribers,
Safaricom hit worldwide attention with the launch of its
innovative M-Pesa mobile money transfer service in
2007. This has helped further establish the company as
the biggest not only in Kenya but in the whole East and
Central Africa region. UK teleco Vodafone owns 40% of
Safaricom, with the remaining 60% owned by individual
and corporate investors.
Kenya
Commercial
Bank (KCB)
Finance
Just as Safaricom is the telco of choice in Kenya, KCB
has established itself as the primary player in the
banking and finance sector. Under CEO Martin Otieno,
KCB has assets of over USD2.65 billion and over 170
branches in Kenya alone. KCB lists its shares on stock
exchanges in Kenya, Rwanda, Uganda and Tanzania,
though with 26% of shares the government of Kenya
remains the primary shareholder.
Nation Media
Group Media
The undisputed leader in the media sector in East and
Central Africa, with region-defining products such as
the Kenyan Nation and Business Daily newspapers,
Uganda’s Monitor, the East African, TV station NTV and
radio stations Easy and Q. Nation Media Group is a
project of the Aga Khan (a British citizen with Iranian
background), who is believed to be the majority
shareholder.
East African
Breweries
Food &
beverage
Founded back in 1922, East African Breweries has
become one of the biggest companies in Kenya and
indeed the whole of East Africa. UK firm Diageo is the
biggest shareholder with 43%, while Guinness and
Barclays also have shares.
Equity Bank Finance
Another indigenous Kenyan bank, Equity started as a
building society in 1984. Today its assets total USD1.7
billion and it has over six million customers. This
success has largely been based on a policy of targeting
low income earners in Kenya. Again the primary
shareholders are foreign-based, in this case the British
American Investment Company with 15 %, though
current CEO Mwangi has 7%.
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Energy and Environment
Kenya has less than 2,000 MW of generation capacity to serve its population,
which constrains economic growth. Kenya is believed to possess over 7,000 MW of
undeveloped geothermal energy resources in the Rift Valley. Wind and biomass
energy are also significant potential sources for power generation.
Kenya aims to increase generation capacity by 23,000 MW by 2030 and by 5,000
MW by 2016. The Government of Kenya is focused on sustaining a stable
investment climate for private sector participation in the sector, developing expanded
transmission and distribution networks to deliver power to customers, maintaining a
creditworthy off-taker, maintaining cost-reflective tariffs, and reducing inefficiency in
the sector to support more affordable end-user tariffs.
The main sources of energy are wood fuel, petroleum and electricity accounting for
69%, 22%, and 9% of total energy use respectively. More precisely, 68% of electricity
is generated using renewable energy sources which are predominantly hydro (48%)
and geothermal (12%), while 33% is from fossil fuels. The total electricity which is
generated is shared by less than 20% of population of the country, and more than
80% of the population remains without access to the electricity.
The outlook for Kenya’s renewable energy sector is positive. However, there is
some confusion about projects and the government’s ambiguous energy policy that’s
overshadowing excitement.
The Lake Turkana Wind Project (LTWP) in North Eastern Kenya, spanning 40,000
acres, will provide the country’s national grid with 300 MW of wind power capacity.
The facility is expected to be online by 2016 when 365 wind turbines will generate the
energy at the farm. As well as the Lake Turkana farm, a number of other wind power
projects are in the pipeline in Kenya. They include the Kipeto Wind Project in the Rift
Valley Province, which will have a capacity over 100 MW; a 90 MW Electrawinds
project in Lamu; and the 61 MW Kinangop wind farm project in central Kenya.
In contrast to Kenya’s booming wind power sector, Kenya’s solar policy has been
beset with some confusion and enthusiasm for solar on a government level has
been described as weak. Although the government has limited enthusiasm for on-
grid solar projects, it has pursued a policy of ramping up off-grid solar production in
rural areas. Despite the government’s exclusive focus on solar in the context of rural
areas, according to experts, solar has huge potential on-grid as well in Kenya. There
are signs that organizations in the private sector are showing more interest in
deploying large solar projects of their own.
"There is basically real potential for solar wherever the government is not involved,"
said Janosch Ondraczek, a researcher on solar energy in East Africa and a project
manager for renewable projects at PricewaterhouseCoopers. An example is the
British firm Solarcentury at the Changoi Tea Farm. It has gone down in history as
East Africa’s largest solar project to date. The installation is expected to slash the
energy costs of the farm’s owner by roughly 30% as the firm will be less dependent
on energy from the grid and diesel.
Kenya has huge potential for geothermal which has not been tapped, say
observers. Once the infrastructure is built, the industry could rival non-renewable fuel
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sources like coal. Out of the renewables, geothermal is the most reliable in the
Kenyan context and it would be a quick fix solution. The country has estimated
geothermal energy potential to be 10,000 MW.
InfoDev’s Climate Technology Program (funded by the Australian Agency for
International Development (AusAID), the Danish International Development Agency
(DANIDA), UK’s Department for International Development (DfID), the government of
Norway, and the World Bank) supports local climate and clean technology SMEs and
start-ups through its targeted Climate Innovation Centers (CICs).
Healthcare and Wellbeing
Kenya has made great efforts in controlling diseases such as Malaria, TB, Cholera
and actively fighting the HIV/AIDS pandemic. Similar efforts have been made in
controlling communicable diseases such as poliomyelitis, neonatal tetanus and
measles. Kenya has committed to spending 15% (currently 3-5%) of its national
budget on healthcare amid plans to transform itself into a middle income nation by
2030. Figure 6 illustrates the healthcare and pharmaceuticals market.
Figure 6. Healthcare and Pharmaceuticals Market in Kenya
With public-private partnerships (PPPs) shaping the healthcare market and
membership of the EAC trading bloc reducing regulatory hurdles to entry, Kenya’s
healthcare sector is forecasted to have an annual growth rate of 13-17% (local
currency) through the next five years. This reflects opportunities in both
communicable diseases and non-communicable diseases which are a growing
challenge in the country. The rapid increase in diabetes, for example, has seen the
launch of a major diabetes treatment and management pilot project sponsored by
Novo Nordisk.
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Kenya has the most well-established pharmaceutical manufacturing industry in
the region. The pharmaceutical industry consists of three segments: manufacturers,
distributors, and retailers. All these play a major role in supporting the country's
health sector, which is estimated to have near 5,000 health facilities countrywide.
Kenya is currently the largest producer of pharmaceutical products in the Common
Market for Eastern and Southern Africa (COMESA) region. Out of the region's
estimated 50 recognised manufacturers, approximately 30 are based in Kenya. The
industry compounds and packages medicines, repack formulated drugs, and process
bulk drugs into doses using predominantly imported active ingredients and
excipients. The bulk of the locally manufactured preparations are non-sterile OTC
products. The local industry has further greatly benefited from licensing agreements
with MNCs.
Millions of Kenyans cannot afford to pay for health services at public or private
clinics. Although health insurance has been available since 1966, only 20% of
Kenyans have access to some sort of medical coverage (source: World Bank). It is
estimated that less than 2% can afford private healthcare.
With an ageing population, more chronic diseases and obesity, Kenya’s healthcare
needs innovation to meet the challenges it will face in the future. With a small budget,
few well-equipped heath facilities and even fewer doctors, nurses and midwives, the
country is focusing on innovative ways to do much more with less. Further,
Kenya has been recognised as the East African hub for pharmaceutical production
and import/distribution into other parts of the region. It is often the host of African
level HQs for various firms and an important market to tap into from a growth point of
view, opening doors to neighbour countries.
CASE: How Philips is Adapting its Global Strategy to Better Address the African
Market
For global companies looking to be successful in African markets, an understanding of its
unique business environment and consumer behaviour is vital. And it is increasingly being
acknowledged that business models that work in other regions of the world, do not always
work in African markets.
One company that has been adapting its global strategy to better address specific needs in
African countries is the Netherlands-based technology brand, Philips. “Up until 2011 a lot of
our focus as a company was on how do we use our global portfolio generically in Africa,”
said JJ van Dongen, senior vice president for Philips Africa. However, today the company
has adopted a number of strategies to make its global portfolio more relevant for the
African market.
A focus on off-the-grid communities
Van Dongen noted around 600 million people, about 60% of the African population, live off-
the-grid, and the company’s lighting, healthcare and consumer portfolios need to address
this. For example, the company has been investing in adapting its healthcare products to
meet the needs of rural clinics, rather than just the large hospitals.
In 2014 Philips established its Africa Innovation Hub in Nairobi to focus on research and
development of new solutions to tackle challenges such as access to lighting and
affordable healthcare. The Hub has launched its first Community Life Centre in Kenya to
provide products and services to strengthen primary healthcare and community
development. Members of the community can also purchase products such as home solar
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lighting, smokeless stoves, and purified water.
Making products financially accessible
Philips has also looked into how it can adapt its global business model to be more
financially accessible to the majority of consumers on the continent. “If you have a US$60
product, how do you support a consumer earning $1 or $2 a day to buy that product? In
essence it’s about finding ways of making that product financially accessible to that
individual,” explained Van Dongen.
While a kerosene lamp will cost a consumer more than solar lighting over a course of a
year, many consumers do not have enough money to pay for solar lighting products
upfront. “If they go for solar lighting it will probably cost them $10 to $20. But to pay the $20
upfront may be difficult for them. So it’s about finding a financial solution – either through
microfinance and working with banks, or working with women’s groups and church groups,
or physically having a pay-as-you-go methodology to actually allow consumers to buy it in
instalments, as opposed to having to pay upfront for it.”
According to Van Dongen, Philips has been testing these payment strategies in East Africa
and is looking at expanding them elsewhere on the continent, not only for consumers but
also for governments. “A government may have many clinics that it wants to upgrade. How
do you make it financially viable for a government to actually upgrade its rural primary
healthcare system in a feasible and economically viable method? So we are working with
governments in terms of trialling [payment options].”
While most of the company’s products are imported from elsewhere, Van Dongen said
Philips does manufacture some items locally where there is a specific African demand for
them. “We always look at ways more effective than importing products. But obviously as a
company with a global footprint, we look at centralisation of our manufacturing facilities.”
Source: How we made it in Africa
CASE: Made in Kenya: Pharmaceutical Firm with Pan-African Ambitions
With a growing population and obvious market demand, Kenyan pharmaceutical
manufacturer Dawa Limited has big ambitions of expanding its reach across 30 countries in
Africa over the next five years. Dawa is already active in 10, distributing a range of 140
products for both human and animal use.
Kenya is one of few countries in Africa with a robust pharmaceutical manufacturing
industry. The East African nation has over 30 manufacturers. The company has started
exporting to Côte d’Ivoire, Togo, Benin and Senegal. “We are focusing on francophone
West Africa where there are few players. The scope for Dawa to move into those countries
is huge,” says Patel.
Factors that will drive Dawa’s expansion success include going to markets where there is
little or no local production, and having an upper hand in logistics compared to other
exporters. He explains, for instance, that Dawa has an advantage in markets such as
Malawi and Zambia where its goods arrive in two weeks compared to the four to six weeks
it takes to export from India or China. Acceptability in new markets will also be vital.
“There are countries which will not think much of Kenyan products,” he says. “The southern
part of Africa will still prefer to pay more and get products from South Africa. In Angola
where we tried and had to stop, the market is still dominated by South American countries
such as Brazil. We are now planning re-entry into Angola, but with a different strategy.”
He notes that opportunity is also abundant in veterinary products. Neighbouring Ethiopia
has the largest cattle population in East Africa. Dawa is constructing a new $4m plant, due
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to open in 2016, dedicated to these products. “We feel the veterinary market is growing
tremendously in Kenya and surrounding countries.”
It recently completed a $5m renovation of its Beta Lactam unit which makes penicillin-
based antibiotics and is expanding its warehouses to cater for increased production. Next
year Dawa will spend $7m to expand its general manufacturing block which makes
products such as capsules and tablets. And there are currently talks with a Tanzanian
manufacturer for a takeover.
“The population in Africa is growing so pharmaceuticals will always be in demand. The
amount of funding from foreign donors towards medicines is increasing, a good indicator
for our industry. We also see more foreign companies bringing in pharma products,” says
Patel. “In fact one area where see growth is in joint ventures for manufacturing of high-end
specialty products and vaccines.”
When Patel and his business partners took over Dawa in 2004, initially owned by the
government of Kenya, it had a well-known brand, 50 employees, 30 products and very old
machinery. He describes the journey of reviving Dawa as “rocky”. Besides fighting off
cheap imports, Patel and his partners had expertise in finance and the medical field, but
none in the technical elements of manufacturing. Getting talented people in this field was
challenging, and still is. The Good Manufacturing Practice (GMP) standards kept changing
hence the team had to make massive investments in improving the factory. Loans came at
high interest rates.
But Dawa weathered the storms and has come out strong. It now employs 450 people. In
2010 and 2011 it was recognised as one of Kenya’s Top 100 mid-sized companies. Last
year the company broke out of the mid-sized category when annual sales exceeded the
threshold of Ksh. 1bn (about $11.1m). Its sister company, Medisel Kenya has also grown
from a staff of three to 180. It started in 1994 with importing just three products from
Greece and now has a range of over 400 and offices in India and China.
Source: How we made it in Africa
CASE: Bar-coded Vaccination/Mother and Child Wellness Card
A team from the University of Nairobi has been awarded USD120,000 for an innovation
designed to tackle child deaths using a bar-coded Vaccination/Mother and Child Wellness
Card that tracks vaccinations and rewards mothers with discounts on farm products.
The scheme, successfully piloted in North Western Kenya, is one of four African initiatives
to have won a share of the 2014 GSK and Save the Children Healthcare Innovation Award.
In rural Kenya, many families are unable to have their children and expectant mothers fully
immunised due to the distance they live from the nearest health clinic and cost of the
journey, along with challenging vaccine fees. Child immunisation is seen as a critical
measure to reduce death rates in children under 5 years.
“The vaccination card uses a unique model, never used anywhere else in the world, to
address the challenges of under-vaccination and food security, so parents are no longer
forced to choose between vaccinating their child and buying seed for the season’s planting.
Thanks to the card, children are vaccinated and protected against preventable illnesses for
the rest of their lives and households enjoy better harvests which safeguard their nutrition
and livelihoods”.
-Dr. Benson Wamalwa, University of Nairobi spokesperson
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Education
In 2003 the Kenyan government promised free primary education to its citizens.
Foreign aid has poured into Kenya’s state education system, bringing the country as
close as any in Sub-Saharan Africa to achieving universal primary schooling and
nearly nine out of ten school-age Kenyans under 11 are now in education.
But the row over the continued imposition of fees and concerns over
plummeting standards make many wonder if the money has been wisely spent.
Mwangi Kimenyi, a Kenyan economist at the Brookings Institution, notes that the goal
of wider enrolment was “poorly conceived”, as it has failed to keep up standards
(2013). A World Bank report (2013) found that Kenyan teachers were absent almost
half the time and pupils in Kenya’s state schools received on average little more than
two hours of instruction a day. Another study found that only one-third of public-
sector teachers scored at least 80% when tested on the curriculum they are meant to
teach.
Open Institute, based on a Uwezo East Africa report (2013) states that education is
getting worse. Employers are lamenting that many of the “learned” employees that
they employ have no social or life skills and struggle with leadership and problem
solving.
So what is the problem with education in Kenya? This is complicated and there
are many perspectives:
Teachers’ perspective
When you speak to the teachers union, you hear that the real problem is that
teachers are not motivated enough through pay and benefits. When you
speak to head teachers you hear that schools have barely enough funding to
maintain classrooms and water facilities.
Parents’ perspective
When you speak to parents, you hear that the education system is dubious,
that it has undergone too many patchwork changes for it to be relevant. “How
can my child be competitive in this world when technology is not taught in
school?” an iPad wielding middle class parent asks. Yet another parent in a
remote county wants to know how his child could have a hope of being
literate (forget competitive), if there are only two teachers in an area of 100
square kilometres. And in the same area a mother wants to know how we
expect her daughter to become a teacher if she cannot stay in school
because it has no sanitary facilities.
Policymakers’ perspective
You speak to a policy maker and you hear pontification about how parents
have abdicated their responsibilities to their children as they chase their daily
bread. “When we were young,” the commentary may begin, “our parents
were there to teach us values, to spank us right alongside the teachers when
we misbehaved. There was a tightly woven net between teachers who taught
academic things and parents, who taught values and morals. Now all of it is
left to teachers.” There are not enough hours in the day to teach arts and
music as well as religion and morals, the policy maker continues. “We have
to prioritise.”
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In Kenya’s private schools, enrolment has tripled from 4% of pupils in 2005 to 12%
at the latest count. They have to compete for pupils, can sack bad teachers, and offer
tuition at relatively modest rates. Research by Brookings under its “Africa Growth
Initiative” found that the fees for two-thirds of children in Kenyan private schools are
lower than in the supposedly free state system.
Bridge International is an example. They have a chain of local low-cost private
schools, puts its cost per child in primary school at one-fifth of the $350 it estimates
as the total real combined cost for parents and the state in the public system. “We've
shown you can do a lot more with a lot less in the private sector,” says Shannon May,
a co-founder.
ICT, Digitalisation and Mobile Solutions
Given the importance of the ICT industry for creating growth and generating
opportunities in Kenya, especially among young people, and its growing contribution
to GDP, the Government of Kenya is keen to take up a focused enterprise
development initiative in close collaboration with the private sector.
There has been a wide range of ICT Initiatives and projects recently run and ongoing
in Kenya, including:
Digital Inclusion Projects (Pasha Centres/Digital Villages, Wezesha Initiative)
Business Process Outsourcing
Local Content Programme (Tandaa Digital Content Grants, Open Data
Portal)
Information Security
Other Initiatives (Konza Technology Park, zero-rated taxes on imported ICT
hardware, eGovernment, Skills Programmes).
There is a vibrant ICT focused tech innovation ecosystem. Nairobi's start-up scene
began to develop before 2010, with two different and simultaneous moves. The first
big innovation was M-pesa. The second innovation resulted from the presidential
crisis of 2009. This triggered the creation of Ushahidi, a crowdsourced map used for
emergency notifications designed by the team of Erik Hersman, better known as the
"White African" online and one of the top thought leaders and doers of tech in the
continent. This team has been a fertile ground for a lot of other tech initiatives,
including iHub, often labelled as the top tech community in Kenya.
Start-ups in Kenya have recently attracted a lot of interest and funding. A report
published by Venture Capital For Africa says that Nigeria has the most start-ups
raising capital. However it is Kenya that attracted more overall investment.
Some people say that there is a lot of hype with Kenyan start-ups. Lack of talent,
problems in attaining seed capital and ideas that cannot be sold to a mass market or
easily monetised have so far held back hundreds of Kenyan start-ups. Many have
been drawn to the tech sector by the Kenyan government's push for a "digital future",
plentiful Western donor funding and foreign media coverage about "Africa's Silicon
Savannah".
"From co-founders of Facebook to the biggest tech funds you can find in Silicon
Valley, they've all been here to look and they have all gone home shaking their
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heads," said Nikolai Barnwell, a Nairobi-based director of 88mph, a tech seed fund.
His fund, which has seeded almost 20 companies in East Africa's biggest economy,
is taking a break from investing in Kenyan start-ups to focus on Nigeria where he
believes the tech ecosystem is more profit-focused and there is less "fluff".
Jeremy Gordon, founder of Nairobi-based Echo Mobile, said recruiting is tough and
tech start-ups spend a large amount of capital on engineering talent. "Equity is less
attractive to engineers in Kenya when weighed against salary, which is not surprising
given the nature of the start-up space, availability of funding, and the Kenyan
economy," he said.
Mark Kaigwa, founder of Nairobi-based tech consultancy Nendo, said Kenyan techies
broadly focus on the business-to-consumer market that grabs headlines even though
most of the profitable start-ups service the business-to-business segment. "You have
a swarm of developers who are looking at business-to-consumer apps but with no
road-map," said Kaigwa.
Shortage of investment, a perennial African problem, is another impediment. Early
seed capital provided by the likes of 88mph and a handful of other funds is scarce.
And with interest rates on Kenyan loans often topping 20%, bank loan becomes
expensive.
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Future SWOT: Kenya
Kenya, like many countries in Africa, has been experiencing strong growth and the
prospects for the long-term future of the country look quite impressive. While many
Africa countries will be suffering from low oil and commodity prices, Kenya will see
improving internal and external balances, thanks to lower oil prices. Kenya is set to
become one of the top five fastest-growing economies in Sub-Saharan Africa, with
growth rates rising to between six and seven per cent over the next three years,
according to the World Bank.
“Kenya is emerging as one of Africa’s key growth centres with sound economic
policies in place for future improvement” said Diarietou Gaye, the World Bank’s
Country Director for Kenya in 2015. “To sustain momentum, Kenya needs to continue
investing in infrastructure and jobs, improve its business climate, and boost it
exports.”
However, some challenges remain. In particular, sluggish demand for exports and
their declining production is widening the country’s current account deficit. The World
Bank report suggests that in order to anchor and sustain growth, Kenya needs to
boost productivity and improve the business environment to regain and increase its
competitiveness. In recent years manufacturing’s contribution to Kenyan exports and
growth has fallen behind and performance has been less than optimal. “Kenya needs
to increase the competitiveness of its manufacturing sector so that the country can
grow, export, and create much needed jobs,” said Maria Paulina Mogollon, the World
Bank Group’s private sector development specialist. A strong manufacturing sector
would create more employment, especially for young people in Kenya.
PriceWaterhouseCoopers has identified (2014) Kenya’s success factors the
following: broad-based economy, youthful population and strategic location. As a
result, many companies who are considering African investment see Kenya as an
ideal entry point, thanks in part to its stable political environment.
This SWOT matrix below provides an investors’ viewpoint of Kenya.
Strengths Weaknesses
Strong country vision for the future.
Regional commercial and investment hub.
Economic and political links with several countries(East and West).
Foundation exists for diversification of economy
Developed financial sector.
Large, relatively skilled population.
Investments in infrastructure.
Thriving agricultural and retail sectors.
Economic growth not dependent commodities.
Growing middle class.
Heterogeneous country (more than 50 languages, 13 ethnic groups).
Inadequate infrastructure.
Small economy compared to other regional powerhouses (South Africa and Nigeria) in Africa
Poor quality of education, lack of skills.
Low productivity and competitiveness.
Economy remains very dependent on rain-fed agriculture.
Dependence on Europe for trade, remittances, and tourism earnings.
Opportunities Threats
Becoming a regional, perhaps even continental, leader.
Poor governance, red tape and corruption.
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Potential in manufacturing (in African context) and transportation (mega port in Lamu, improving railway network).
Developing manufacturing sector leading to growth of middle class.
Building something on combined strengths (an example: medical tourism).
Succeeded in building innovation areas (e.g. mobile banking, pharmaceuticals) that draw other innovations and innovative players.
No improvement in education. Brain-drain continues.
Despite of strong vision in place, execution fails and can’t grow into the league of South Africa and Nigeria.
Ease of doing business remains weak.
Terrorist attacks continue and cause a vicious circle (tourism suffers, investments are withdrawn/put on hold).
Terror fears have already hit tourism hard, and the danger is they will impact FDI as well.
Scenarios
Figure 7 provides four potential scenarios for Kenya 2020. These are based on various sources of information and signals and information available. The two main components of the scenarios are:
1. Level of economic diversification 2. Openness of the economy
Any of the scenarios, or combinations of the scenarios, could come true. Much depends on local government policies and actions of international players, and other uncontrollable factors.
Figure 7. Scenario framework
The scenarios for Kenya in more detail are described in Figure 8.
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Figure 8. Four Scenarios for Kenya 2020
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Information
Sources
Publications:
African Development Bank: Tracking Africa’s Progress in Figure 2014
African Development Bank, Development Centre of the Organisation for Economic Co-
Operation and Development, United Nations Development Programme: African Economic
Outlook 2014, Global Value Chains and Africa’s Industrialisation
The Economist: Africa is the horizon 2015 African Business Outlook Survey
International Energy Association: Africa Energy Outlook, 2014
KPGM: Kenya Snapshot 2014
PriceWaterhouseCoopers: Kenya Private Company Survey: Navigating the owner’s agenda,
2014
University of Oxford: The Internet and Business Process, Outsourcing in East Africa: Value
Chains and Networks of Connectivity-Based Enterprises in Kenya and Rwanda, 2014
World Bank: World Development Report 2015
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