Entrepreneurship is the answer

The needs of the 21st century are not the same as those of the 20th century. The solutions to our 21st century needs, therefore, will not be those that worked in the 20th century. With low levels of industrialization, high unemployment among the youth and a low revenue base, Kenya needs to blaze a new path for itself going forward. If low natural resource utilization, low productivity, high unemployment, and high levels of income inequality are the questions, entrepreneurship, I propose, is the answer.

In the 20th century, industrialization required assembly-line factories where goods could be mass produced. Such manufacturing created millions of blue-collar jobs, supported the growth of a middle class, and was a primary engine of economic transformation. The 21st century, this century, is different. The last 20 years have been defined by exponential leaps in technological advancement, with the development, commercialization and consumerisation of the world wide web and the internet as a driving force. The word “startup” is now a stereotype for a group of young software coders huddled in a room somewhere building an app, with grand dreams of becoming dollar billionaires in a few years. A look at the ranking of the largest companies in the world by market cap proves the point. Compare the 2016 list with the one from 2001, a decade and a half ago.

largest-companies-by-market-cap-chart
Source: Visual Capitalist

As a young nation trying to figure out its career path, Kenya ought to seriously think about the changing times, and make decisions that will orient the nation towards the 4th industrial age, as opposed to eras past. While we urgently need to create jobs today, we will also need to create jobs in 20 years’ time, when, pending some natural disaster or nuclear catastrophe, there could be as many as 60 million of us1. We need to fix the problems of today, while setting ourselves up for success in the future. The Big Four2 that the President has chosen to work on encompass some of the major economic problems we face today and are likely to struggle with in the future: food insecurity, lack of sufficient housing, high rates of youth unemployment, etc. How do we address these challenges today, while empowering ourselves to be able to address them in decades to come in whatever forms they arise?

Kenya needs problem solvers. Thinkers. Innovators. Inventors. Entrepreneurs. We need to tap into that spirit of enterprise and resourcefulness that is characteristic of a Kenyan, and learn how to harness it to solve our problems. In this way, we will be able to figure out and implement the best fixes for today’s challenges, and yet have the capacity to create solutions to future problems. Rather than spend time, money and effort on state-led, bureaucratic problem solving which is typically wasteful and ineffective, it is more useful and will yield a higher return to spend time, money, and effort on creating a population of problem solvers.

A large multi-national appreciates the macroeconomic reasons for investing in Kenya, and builds a 10-billion-shilling factory that processes hides and skins into leather products. The factory directly creates jobs for 1,200 Kenyans and several Kenyan firms benefit from supply contracts. Some of the goods produced in the factory would be consumed locally and surpluses exported. The economic gains would be significant, maybe 5 or 6 times (up to KES 60 billion) the initial investment over the next 10 years. The 2 Kenyan shareholders in this manufacturing business would earn billions for themselves, the financial fortunes changed for them and their families forever.
At the same time, a wealthy philanthropist donates a similar KES 10 billion amount to be used to support startups and young entrepreneurs involved with hides and skins and the leather industry over the next 10 years. If 100 entrepreneurs can access this funding each year with a success rate of 10%, we would have 100 thriving enterprises within 10 years. If each business directly employs 30 people, our generous philanthropist will have indirectly created 3,000 jobs. The 100 leather entrepreneurs would probably make hundreds of millions for themselves and their families in the process. In this case, the billions that the 100 leather companies would collectively would be spread out among a larger group, 100 companies as opposed to 1 factory. I have no empirical data to support this, but it is reasonable to think that 100 new centimillionaires would be better for the economy and society than 2 new billionaires.

After a few years of booming business, the country grinds to a halt on a controversial and hotly-contested general election. The economy stutters and electioneering is extended by 6 months on the back of a Supreme Court decision. Trade comes to a slow crawl. The frustrated multi-national decides to relocate operations to Addis Ababa and 1,200 Kenyans are swiftly rendered jobless: scenario 1. In scenario 2, it is unlikely that all 100 leather companies close shop. Of this 100, some would have opened processing factories in industrial zones, others would be running pricey shops in fancy malls selling high-end shoes, some would have hired artisans to produce shoes aimed at school-going children, and others would have set up studios where they use finished leather to produce designer bags, belts, and mobile phone skins. Extended electioneering would probably affect all 100 businesses negatively, but we can be fairly certain that not all of them would close down. An economy comprised of 100 middle-size enterprises would be much more resilient to shocks than an economy made up of 1 behemoth.

After 20 years of financial success, the beneficiaries of this experiment of ours would want to give back to society. They all decide to start giving motivational talks to students in their various alma mater each month. In the first scenario, being only 2 principal beneficiaries, they speak to students in 2 schools each month. Even if half of the 100 entrepreneurs in the second scenario squander their wealth, the remaining 50 entrepreneurs would able to speak to students in 50 schools each month. After 1 year, the 2 billionaires would have met students in 24 schools, and the 50 centimillionaires would have addressed students in 600 schools. The second group would speak to many more students, and although their motivational impact could be lesser in magnitude (billions vs hundreds of millions), their message would likely spread with faster velocity, increasing the odds of young people following in their footsteps.

In looking to address the Big Four and other socio-economic problems, we have two broad choices. We can take the direct approach, where one large Messianic entity is given the mandate and billions of shillings to address a problem, say, the National Hospital Insurance Fund with respect to health care or the Ministries of Agriculture and Water & irrigation with respect to food security.

Innovation-is-a-state-of-mind

Alternatively, we can take an indirect approach. Entrepreneurs can be incentivized to create innovative solutions. Invariably there will be some wastage and loss, but the chances of success are much higher. Whichever route chosen, we need to pose serious questions to ourselves about how we will solve new and bigger problems in the future (e.g. cybercrime, climate change, job losses from robotics and automation, etc.). If we start the work of creating a startup culture now, future generations may be better equipped to come up with the entrepreneurial answers. And, as we’ve seen, doing so makes economic sense!

1Based on a conservative net population growth rate of 1.5%

2These are: food security, affordable housing, affordable healthcare, and manufacturing