Why Innovation and Entrepreneurship is Slowing Down in Kenya

By By Stephen Osomba – March 13, 2023

From a light bulb by Thomas Edison to the digital computer by Charles Babbage, man’s quest to solve myriad challenges bedevilling humanity continues to drive innovation. And with each invention, we have been able to significantly improve the quality of life and business around the world. Today, it is possible to meet with someone located thousands of kilometres on the other end of the globe, thanks to internet technology. Indeed, existing industries have been transformed whilst completely new ones have since emerged, creating new opportunities for even further advancement, both economically and socially.

Innovation around the world
Despite the achievements, there is seemingly no chance of us solving all problems. Each new day generates new challenges, adding onto the old ones that are frustratingly taking long to solve. Thus, there is an urgent need, more than ever before, to double our efforts towards meaningful innovation. From a global perspective, countries are beginning to invest heavily in research and development on the back of mounting challenges facing humanity. According to UNESCO, global spending on research and development (R&D) has reached a record high of almost US$ 1.7 trillion, with a huge proportion going into digital technologies. As per the Global Innovation Index 2022, an annual report by World Intellectual Property Organization (WIPO), the top ten most innovative countries (in descending order) are: Switzerland, the United States, Sweden, the United Kingdom, Netherlands, South Korea, Singapore, Germany, Finland, and Denmark.

Innovation in Africa
Even though developed countries continue to dominate the top ranks of innovation indexes, African countries are also striving to leave a mark on the world innovation map. The top ten most-innovative countries in Africa, according to the 2022 Global Innovation Index are: Mauritius, South Africa, Kenya, Cabo Verde, Tanzania, Namibia, Rwanda, Senegal, Botswana, and Malawi. Unlike other continents, innovation around mobile technology has emerged as the most favoured area among African countries. With about 500 million people currently using a mobile phone across the continent and an additional 113 million projected to join the bandwagon by 2025, mobile technology has great potential to create new growth opportunities: from mobile money, e-commerce, and telemedicine to distance learning.

Slowdown in Kenya
Kenya has been in the spotlight over the years for its triumphs in innovation, thanks to its thriving startup ecosystem. One of the most notable areas of innovation in Kenya is mobile money. The country's leading mobile money platform, M-Pesa, has transformed the way Kenyans access financial services, with more than 30 million users and over 300,000 agents across the country. M-Pesa has also inspired a range of innovative solutions in other areas, such as healthcare, education, and agriculture. However, since the advent of mobile money in 2007, there hasn’t been another popular breakthrough and seemingly, software developers are trying so hard to relive the past glory. Put simply: innovation in Kenya has plateaued. So, what could be the problem?

1. Tunnel vision in mobile technology
One of the main reasons why innovation is slowing down in Kenya is tunnel vision. To jog your memory a little bit, tunnel vision is a cognitive bias that can occur when individuals or groups become so focused on a particular goal, idea, or perspective that they ignore or fail to consider alternative options or information. After M-Pesa’s success, almost all subsequent inventions and attempts thereof have been anchored on the concept. As a result, the country ostensibly can’t go past Fintech products and services with the now cliché elevator pitch of banking the unbanked and deepening financial inclusion and access.

Tunnel vision has led to a lack of creativity and flexibility. Because entrepreneurs in the ecosystem have become too fixated on mobile technology, especially financial technology, we have missed out the opportunity to explore new ideas, trends, or markets. People have become so entrenched in their existing ideas and ways of thinking that they are unwilling or unable to consider new possibilities or to adapt to changing circumstances. As such, few, if any, are keenly looking out for emerging trends or other disruptive innovation that could challenge their assumptions or business models.

2. Me too mentality and success trap
The invention of mobile money was phenomenal and has subsequently inspired many other innovations. Unfortunately, Safaricom’s triumph with M-Pesa has bred and entrenched a ‘me too’ mindset among many aspiring entrepreneurs. Everyone is, in one way or the other, striving to replicate M-Pesa’s success rather than create something new. The mentality has discouraged individuals from taking risks to pursue new, innovative ideas. Instead of trying to come up with something original, people feel more comfortable imitating what has already been successful. This has led to a lack of diversity in ideas and less experimentation with new concepts.

Kenya’s innovation and entrepreneurship landscape is laden with countless inventions modelled around mobile technology. Almost every innovation is now ‘m-something’ or a close permutation. Indeed, it has turned out to be a race for the next big thing in mobile technology powered innovation. Consequently, the market has become oversaturated in products and services with a limited marginal utility. Given the common basis of these innovations, consumers are finding it difficult to find solutions that can solve their needs due to lack of differentiation. Meanwhile, those outside the tech ecosystem are preoccupied with copying successful business models in other areas to get rich quick.

3. Lack of financing and faith in entrepreneurs
For developing countries to leap to industrialization, substantial funding is required for research and development. Generally, in Kenya and Africa, many financial institutions are not open to lending entrepreneurs at the startup stage due to their high-risk profiles. No bank is ready to bet on validated ideas or dreams without collateral. Innovation requires capital to fund research and development, product testing, and marketing. However, many innovative startups and SMEs in Kenya struggle to access finance due to the high-risk nature of their businesses, lack of collateral, and the high-interest rates charged by banks. In the absence of access to finance, innovative businesses have been unable to invest in their growth, which has stifled the growth of the innovation ecosystem.

Granted, entrepreneurs with relatively foolproof business models are forced to turn to donors, angel investors and venture capitalists. Unfortunately, the venture capital (VC) industry in Kenya is still in its infancy. Thus, entrepreneurs are forced to rely on foreign VCs looking for opportunities abroad. And when one gets a chance to pitch, the rigorous and gruelling process leaves one drained and exhausted. It takes a lot of zeal to continue your business dream.

Lack of finance has turned inventors into fundraisers. Entrepreneurs are constantly looking out for pitching opportunities and engaging in relentless fundraising activities pitching their ideas to whoever cares to listen, living little or no time for them to focus on core activities like product development and customer acquisition. In the end, they become obsessed, albeit inadvertently, with short-term goals such as meeting investor expectations or hitting fundraising targets, rather than longer-term goals, such as developing sustainable businesses that create lasting value. Furthermore, investors may push entrepreneurs to conform to established business models or market trends, limiting their ability to innovate and take risks. In extreme scenarios, entrepreneurs become more risk-averse as they feel the pressure to meet investor expectations, limiting their willingness to take on innovative and potentially risky projects.

4. Inadequate support from government and family
Ask anybody in any of the myriad business incubators across the country about the challenges they face in their entrepreneurial journey, and one theme will surely come up: lack of support, whether it is financial, moral, or legal. In the past, people used to go to school with the hope of securing lucrative employment opportunities in the leading blue-chip companies or government. However, as time went by, shifts in the labour market and economic systems has forced many into entrepreneurship. Regrettably, most parents are still stuck in the old era employment mindset. As a result, they are not supporting their sons or daughters in their quest to establish own businesses.

Parental support is a crucial factor in building an entrepreneur's confidence. Without it, entrepreneurs may feel less supported and less likely to take risks or pursue their goals, especially during that period when the business is yet to pick up momentum. This lack of confidence can ultimately limit their ability to succeed in the competitive world of entrepreneurship. Government support is also lacking. The existing polices and regulatory frameworks are not considerate of the needs of new and emerging startup businesses. The regulatory environment is complex and cumbersome, making it difficult for entrepreneurs to start and grow new businesses. Entrepreneurs face significant hurdles, including excessive bureaucracy, inconsistent regulations, and corrupt practices. A 100-year company and 10-month startup are regulated by the same policies and regulations. Take taxes, for example. New indigenous businesses don’t have tax incentives. But foreign companies, no matter the size, get tax holidays of up to 5 years.

Final Thoughts
In Kenya, the level of innovation and entrepreneurship, although impressive, is of limited marginal utility, signalling a slowdown. As discussed above, the prevailing situation can be attributed to factors like tunnel vision in mobile technology, me too mentality and success trap, lack of financing and faith in entrepreneurs, and inadequate support from the government and family.

Nevertheless, Kenya should continue pushing the boundaries of innovation by fostering a culture of open-mindedness and curiosity. This can involve encouraging diverse perspectives and constructive criticism, providing opportunities for experimentation and exploration, and staying abreast of new developments and emerging trends. By remaining vigilant against the effects of tunnel vision, individuals and organizations can stay innovative and adaptable in the face of change.

To counteract the negative effects of the "me too" mentality, it is essential to encourage innovation and support entrepreneurs who are willing to take risks and pursue new ideas. The development of new and creative solutions to problems can be achieved through education, funding, and mentorship programs. Additionally, consumers can play a role in promoting innovation by seeking out and supporting new and unique products and services.

Financial institutions and startups operate in vastly different environments. While established financial institutions have long-term stability and a secure financial position, startups are characterized by their high financial risk profiles and the potential for explosive growth. Despite these differences, financial institutions can work with startups to help mitigate risk and create opportunities for both parties. With careful risk management and a willingness to invest in innovation, financial institutions can help fuel the growth of businesses producing valuable products and services by offering customized financial solutions that cater to the unique needs of startups.

Lastly, governments can play a vital role in supporting entrepreneurship and innovation by reforming policies and programs that provide access to capital, infrastructure, education and training, and a supportive business environment. By supporting entrepreneurs and innovators, governments can foster creativity, encourage risk-taking, and enhance the competitiveness of local businesses. Governments need to recognize the importance of entrepreneurship and innovation and provide the necessary support to enable entrepreneurs and innovators to thrive. By doing all the above, Kenya will unlock its full potential and become a leading hub for innovation and entrepreneurship in Africa to improve living standards and create a better future for everyone.