How Hard Is It To Start And Build A Business In Kenya?

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We ranked 8th! Out of 12 countries studied, Kenya ranked eighth at conduciveness of starting and conducting a business in Africa. ‘That is too low!’ was my immediate thought. When I first came across this report, I was taken aback. I am not an economist or anything close but I naively thought that we would do better than 8th but after giving it a little more thought, it makes sense. So many people start businesses but fail all too often. Sure, factors such as inadequate skills or team squabbles and lack of funding all are major contributors to failure, but one thing I continually hear from people starting businesses or those who failed at it is that our environment doesn’t really support SMEs and this report proves it.

Thinkroom Consulting undertook a study on the SME landscape in Africa in light of the increasing global emphasis on investment opportunities in Africa’s rapidly growing economies. The purpose of the study was to help investors and SMEs understand the business landscape of a country before deciding to go into their markets. In their inaugural report titled An SME Landscape Study: The Conduciveness of Starting and Conducting Business in Africa released on 19 November 2015, revealed a unique ranking of 12 African countries based on their conduciveness for SMEs to start and conduct business.

The twelve African countries studied were Botswana, Ethiopia, Ghana, Kenya, Mauritius, Nigeria, Rwanda, South Africa, Uganda, Zambia and Zimbabwe. The study considered macro-environment, SME environment, internet and mobile capacity as well as infrastructure and logistics of each country in the study. This provided for a holistic set of macro-micro environmental factors that are relevant to SME’s and may have a direct or indirect influence on the conduciveness of a particular country to accommodate SMEs, start-ups as well as their operations.

To my naïve surprise, Mauritius ranked first followed by South Africa and Botswana as being the favourable countries in starting and conducting a business. We ranked lowly with Nigeria, Ethiopia and Zimbabwe meaning our environment doesn’t make it easy for SME’s to start and conduct their businesses which is a shame since we are claiming to be a Silicon Savannah. How is this possible if people struggle with building sustainable businesses? Can this ‘Silicon Savannah’ be achieved? It is key for us to understand where we are going wrong in creating a suitable environment. What does Mauritius and South Africa have that we do not?

I will try to answer the questions above which will be a challenge since I am not an economist. I will use 5 countries to compare results based on the 4 categories used for computing the conduciveness of conducting a business. These include, Mauritius, South Africa, Rwanda, Kenya and Nigeria.

Political Instability and Corruption

“…one of the developing world’s most successful democracies and has enjoyed years of constitutional order”

This has to be the first thing to look at as this is something that is really plaguing our country. According to the study, Kenya is 24.2% politically stable. That is a low percentage! The political environment in Kenya has been tense for the past 2 decades with attempted coups and the post-election violence. This saw many businesses shut down from vandalism and exile. Things have cooled down over the past few years but there is always that nagging feeling that it could all blow up. This can definitely deter investors wishing to set roots in Kenya. Worse of is Nigeria at only 9% stability. If you have been watching the news this year, you can understand why. Yet these are two countries where tech entrepreneurs and startups crop up daily due to undeniable will and determination. Is this a deterrent, obviously but people may be willing to risk it in order to fulfil their passion.

Mauritius ranked highest in terms of political stability with a score of 69. 4%. This has attracted many investors to Mauritius due to the political and social stability experienced. BBC describes the country as “one of the developing world’s most successful democracies and has enjoyed years of constitutional order”.

Corruption, need I saw more? Not one day, no that’s too long, not ONE HOUR passes by without someone somewhere complaining about or even mentioning corruption. It is a disease that we are dying from and one that doesn’t seem to go away. Our corruption clean score (the higher the better) was 25%, meaning that corruption is very high. The amount of tea one has to buy on the journey of starting out a business can be so much that it must be budgeted for. I mean is this necessary really? What about those coming behind you without all that money, can they really succeed if that’s the precedence? Mauritius scored 54%. That’s more than half of ours, with Rwanda scoring 49%. Can we really improve this? With reforms and policies set out, only time will tell if anything will change.

One Month to Get Started

“…summary of the bureaucratic and legal hurdles faced by entrepreneurs wishing to incorporate and register a new firm in Kenya”

Many people try starting businesses in Kenya. Young minds have brilliant ideas and seek to start a company to execute their ideas but it is not easy to start a business here. In fact, according to the report, you go through 10 procedures and take 30 days to get started. I have never tried setting a business up so I was naïve to think that that is normal. My bubble was popped after seeing how long it takes to do this in other countries. You only need 5 procedures and 6 days to get started in Mauritius. I mean it’s a no brainer that it is more favourable to start a business there. Coming closer to home, it takes 8 procedures and 6.5 days for you to start a business in Rwanda, a country that the World Bank has praised for their “remarkable development successes” and one country that I grow jealous of day by day. Why does it take so long to get started here? Is there so much red tape that you need to cross before you see the light of day? I am stunned really.

I went to the all-knowing google and on the search box I typed ‘Starting a business in Kenya’. One of the top search results started out with “summary of the bureaucratic and legal hurdles faced by entrepreneurs wishing to incorporate and register a new firm in Kenya” That says it all.

Internet and Mobile Penetration.

“…for every 100 Mauritians, there are 132 cellular subscriptions…”

Internet and mobile penetration has been on the steady rise across Africa as more and more Africans are plugging into the mobile world. This has been spurred along by the reduction of cost, increased availability and improving infrastructure of supporting these technologies. Access to mobile phones and internet connectivity has really opened up people’s potential in terms of productivity and knowledge, which is a win in all ways, especially for those seeking to empower themselves through entrepreneurship. According to the report, internet penetration in Kenya is at 47.3%, slightly higher than Mauritius at 39% but definitely better than Rwanda that is at 9% Internet penetration. If I interpreted this correctly, this means that we are slightly shy of half of our population being connected to the Internet. Which is a good thing.

Many are on the band wagon of making the Internet cheaper and more accessible to the public, especially in the rural areas. This is because the advantages of being connected as so huge in terms of acquiring knowledge and more specifically, making your business globally accessible. Being connected definitely levels the playing field something that is a plus in building a conducive SME environment.

On the other hand, mobile penetration is low compared to Mauritius and South Africa where the ratio in Mauritius is at 132:100 meaning that for every 100 Mauritians, there are 132 cellular subscriptions. In Kenya, the ratio is at 74:100 with Nigeria being on the same level at 78:100. Why is this the case? Well first of all, Mauritius has a population of 1.26 Million people. That’s a third of the population in Nairobi so let’s not compare our whole country’s population to theirs. Let’s take South Africa which as of 2013 had a population of 52.98 million which is closer to ours. Now their ratio according to the report is at 130:100 which is awesome. We are clearly lagging behind, therefore it is important to understand why. Are phones to expensive? I don’t think so. With the influx of cheap fake phones flooding our towns, I’m sure a person can get a mobile phone with a low budget. Maybe it’s the underlying infrastructure that is preventing a percentage of our population from being mobile. I honestly do not know. This is something that I think should be explored, because in this day and age, being mobile is important especially when starting any kind of business. Mobility, communication and networking is a necessity.

Infrastructure and Logistics Capacity

This is where Kenya holds its own but not by much sadly. The World Bank’s Logistic Performance Index (LPI) ranked Kenya 74th out of 160 in terms of Infrastructure development. This is higher than Mauritius at 115th , Rwanda at 80th , Nigeria at 25th  but nowhere close to South Africa who are ranked 34th. This comes as no surprise as South Africa is very developed compared to us. The infrastructure present in a country is something that people seeking to invest or build businesses in are really keen on. You need to be sure that you can build, expand and connect your business without too many obstacles. Are you going to have a steady supply of electricity and water? Is the Internet connection relatively reliable? Can I move from one place to the other without losing too much money and time in transit? Will my business be accessible? These are some of the questions I imagine go through an entrepreneur’s mind.

For your business to be sustainable, the infrastructure must be supportive. Kenya has been undergoing a facelift over the last couple of years with upgrades of roads like the Thika Super Highway and construction of bypasses all over the city. In addition to that, the construction of the Standard Gauge Railway is picking up which is set to improve our transport sector. Now these are but small examples because most of the roads in the city, especially in Eastlands are wanting.  It is a known fact that many businesses crop up when a new road is constructed. This is because of the increased level of accessibility provided. To support a sustainable SME environment, then it is obvious that the government should work on beefing up our infrastructure.

Overall, the World Bank ranked Kenya 136th out of 189 economies, both in developed and developing countries, measured on how relatively easy it is to do business in. South Africa ranked 43rd and Rwanda is 46th with our winner Mauritius at 28th.

We need to do better. For us to support the startup culture and promote any kind of Silicon Savannah, then a lot has to change as obviously brought out. Without that, you can’t be surprised if more Kenyans and foreigners alike decide to do business in other neighbouring countries with better policies. I am sure we do not want that. I believe in the potential of Kenya and the immense growth we can experience together with the value we can definitely give to the world.

Check out the full report here, it is very informative. Don’t worry it isn’t as wordy as this article is as it uses infographics. Look through to understand more about the SME landscape in Africa.

What are your own thoughts about this? Do you have a business or have you ever tries to start one. Pick up the discussion on our forum.

 

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