Why startups are thriving in East Africa

Posted on April 12, 2017 12:00 am

In Kampala, Nairobi and Dar Es Salaam, big ideas are thriving. Venture capitalists are investing heavily to support and nurture innovation in an industry where market forces apply in a cut throat competition. Entrepreneurs and venture capital firms view East African region as territory offering huge potential and opportunities.There are several reasons why. Firstly, East Africa is a huge market. It is the African’s most integrated regional economy and is a populous region with over 140 million people. Also, young East Africans are extremely tech savvy. Despite a low Internet penetration rate, East African region is one of the largest region in terms of number of Twitter and Facebook users respectively in Africa.East Africans are inspired by what has happened in the western world and the region seems be more acceptable to risk taking. This is just your blogger’s opinion. East African region is attractive because of its low cost and huge market potential. This potential is highlighted with real cash, not just talks. For example, a financial technology startup based in the region has developed a platform for the end to end automation of the lending business, which offers the banking industry’s best practices and tools at an affordable price. With a combined population of over 140 million, and a large proportion of the region still unbanked, the potential is huge for the startup but expect such startups to mushroom within no time.Another reason for the thrive of startup activity is an increasing amount of investment capital, spurred by European and United States firms entering the region. Within East Africa, a growing middle class and rising literacy and education levels have motivated many to start their own business. No wonder then that startup ecosystems, mostly congregated around co-working spaces like Nairobi in Kenya, Kampala in Uganda and Dar Es Salaam in Tanzania, have sprouted.Dar Es Salaam is a unique location that provide co-working spaces on the popular Tanzanian commercial capital for entrepreneurs to meet like-minded people and find support for their ventures. “You can walk into Kijitonyama, just work on your startup, then go for a massage in Sinza. You have a lot of time to focus on your startups because you don’t have to worry about all the other stuff,” one of your blogger’s friend working on her start up said.

In her own words, other stuff is a reference to the domestic help she hires to maintain the palatial home she lives in with her sister in Masaki, an upmarket area in Dar Es Salaam. But no startup ecosystem is complete without money, and every venture capitalist worth his salt will have a presence in Dar Es Salaam, East Africa’s largest city.In Dar Es Salaam, there are the accelerators, incubators, angel investors and government-backed support. For the seasoned venture capitalist looking to invest in a startup in East Africa, they must be aware of the major differences between the region and the developed world.One of them is that there is diversity. The region has a varied mix of cultures, ethnicities and business practices. What works in Melbourne or Helsinki might not apply to a startup in Ugandan’s Kampala, for example.Another challenge lies in the fact that the developed world has had a head start in startups.They have already gone through several iterations and are now delving into deep technology such as artificial intelligence and blockchain, but startups in East Africa are improving on the kind of apps they are developing. In Kenya, academics are driving the deep tech trend but the businesses need better business development capabilities to compete. Another issue is the factor of manpower. Startups in East Africa tend to be founded and staffed by people in their 30s and 40s, who have the money and experience to branch out into unknown territory.However, due to high interest rates, which normally is not always a good thing for business, has helped discipline the way capital is invested in East Africa. Overall, an approach is needed because a startup needs minimum 24 months to get grounded and start the ball rolling.To continue with growth curve, the sector must stay alert for disruption in the markets, whether in terms of technology, market forces, regulations and policies, and ultimately a substitute which is more capable and cheaper to work with. Me thinks the pace of innovation has increased and will not slow down. Many of the startups have a basis for their establishment. Thanks to his connection in the region’s startup scene, your blogger has noted that the value-creation process is at a more even pace, which means there is more sanity in the market and thats the reason he believes East African startup scene will continue to flourish. Risk taking is just one of the key ingredients to breed a start-up culture and East African region seems to be getting there.

Contador Harrison