Is Nairobi no longer the innovation hub of Africa?

Tuesday September 01 2015

Eight years since Kenya gave the world M-Pesa and Ushahidi, the country has become a hub of African innovation.

The iHub, m:lab, Nailab and C4Dlabs, show how young digital-savvy Kenyan tech entrepreneurs are transforming lives.

Several start-ups and mobile applications have been launched to provide practical solutions to Kenya’s development challenges in education, health and agriculture.

But since the launch of M-Pesa and Ushahidi, a crowdsourcing platform used across the world to map conflict, has Nairobi developed any other application of this scale? Or has the emergence of Nairobi as a major tech city been overblown?

READ: Nairobi now ranked as best African city

Some experts have warned that there is a lot of hype surrounding some of the applications launched recently, and that readily available donor money — which was instrumental in setting up the several tech hubs in the capital — is hindering innovation and potentially stifling growth.


A 2014 “Digital Entrepreneurship” survey by GSMA found that about 70 per cent of 230 startups in Kenya are struggling to maintain their operations, and a solid 38 per cent of founders admitted to not having the business know-how to run their companies properly.

As a result, some major funders have opted out of Nairobi for hubs in Lagos and Cape Town, where they think they will get higher returns for their investment.

The East Africa Private Equity Confidence Survey released last year by Africa Assets and Deloitte Consulting found that Kenya is trailing Nigeria and South Africa in attracting capital in the technology industry.

88mph, an African seed fund, which has invested in more than 20 startups in Kenya, pulled out last year to focus on Nigeria and South Africa, which are preferred by investors despite receiving much less media attention than Kenya.

In an interview with the UK-based magazine Wired, the 88mph programme manager in Nairobi, Nikolai Barnwell, said his fund was moving to Lagos because it was much easier for startups to grow into viable business models, unlike in Nairobi.

“In Lagos, there is no fluff. It’s hard business, tough deals, the right kind of business. The first investors made good money. The ecosystem is very healthy,” he said.

“When you look at the infrastructure here [Nairobi], we should be miles ahead. But there’s so much fluff money, no hard talk, NGOs [are] propping businesses up ... it kills it.”

The several “hackathons” and competitions held in Kenya helped connect tech entrepreneurs and even led to the emergence of the dozen tech hubs in Nairobi.

But too many young developers are now focusing on winning these challenges rather than steadily building their ideas into sustainable business models.

“I think developers need a bit of training on user-acquisition and market research before rolling out a product,” said Joshua Mutua, the founder of Keja Hunt, an application that allows users to house-hunt using their phones without the hassle of having to deal with commission-seeking agents.

“They also need to be aware that it is not the best technology that wins, but rather the best solution for a user’s problem,” he added.

According to Sharon Adisa, a consultant with Nailab, developers “are so busy looking for money and funders that sometimes they don’t have the time to focus on their businesses.”

Mbwana Alliy, a managing partner at Savannah Fund, which provides $25,000 funding to promising start-ups in exchange for 15 per cent equity, argues that “many in Kenya are just looking for funding.”

He says developers should instead focus on getting trained and building the skills necessary to successfully run a business, and only then will they be able to attract long-term private equity.

Some rising developers however say Kenya’s tech industry is not over-hyped and there are new applications that are shaking the industry and attracting the attention of venture capitalists from Western financial capitals.

In May, Nairobi saw one of the largest acquisitions of a tech startup when the Mauritius-based financial services group AFB acquired Weza Tele, which provides innovative supply chain and financial solutions for SMEs in emerging markets, for $1.7 million.

To many upcoming developers, Weza Tele, founded by 26 year-old Hilda Moraa, is the biggest vindication yet of the innovativeness of Kenya’s tech industry.

It shows that the industry is developing useful technology that can help meet today’s challenges in a sustainable way and still generate profits.

“There are so many applications out there that are making money… it’s not a dying industry” said Roy Owino, co-founder of Chapa Task, an application that targets blue collar job seekers, who have often been ignored by mainstream job portal sites.

Safaricom and Google recently partnered to launch Waze — one of the world’s largest community-based traffic and navigation apps — in Kenya.

But there is a slight glitch; Kenya already has a similar app called Ma3Route, whose founders said they were not “fazed” by the entry of Waze.

Ma3Route, which has more than 300,000 followers, offers real time traffic information by crowdsourcing data from other road users. It informs road users which alternative routes to use, and gives alerts on accidents, police roadblocks, road closures and traffic jams, helping thousands of Nairobians navigate the capital’s traffic clogged roads.

“Nobody would have ever thought that Ma3Route would have to compete with Waze (an Israeli app acquired by Google) in the same market,” said Mr Owino.