I’m Brian Gachichio Karanja, a writer, strategy advisor and financial modeller. I write and advise on the art and science of building enduring businesses, long-term value investing, and strategies for economic development.
My goal is to provide out-of-the-box, innovative thinking that leads to bespoke solutions to the business problems I advise on, to produce above-average results.
About one million 14-year old kids sat for the Kenya Certificate of Primary Education (KCPE) exam this year. Their scripts were marked and the results released in record time. Of that number – 1,052,364 candidates – 22% of them scored less than 200 marks out of the maximum 500 marks attainable. 236,000 children went through up to 8 years of primary school and, according to these results, were unable to solve foundation-level math and science questions, could not write in English and Kiswahili to an acceptable level, and were unable to think critically enough to score an average of 40% in the exam. This is not an indictment or criticism of the young children. I am certain that most of them tried their very best and I am aware that a 3-day sprint examination is not a fair reflection of 8 years of schooling or the ability or potential of the young students.
This is an indictment of the system.
Despite insistence that all candidates shall transition into secondary school, the data shows that a large number of these young boys and girls will not attend secondary school. Last year the transition rate stood at about 80% and if this is maintained, up to 200,000 students shall not see the inside of a form one class room. It would not be unreasonable to think that those 200,000 thousand students who do not make it to secondary school are most likely among the 236,000 who scored less than 200 marks. For them, it may be the case that this was it. Formal schooling is officially over.
Whereas we can be proud of the speed with which the results of the national exam was released, deep reflection on what those results mean is required. We have done well to increase access to primary school education and the increasing transition to secondary school is commendable. But we must evaluate the value and quality of that education experience.
For the 205,211 young boys and girls who may not make it forward into secondary school next year, what traits, knowledge and skills have been imparted on them that we can be we proud of? Are they empowered enough to actively participate in the economy and society?
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.
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.
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
“A hungry man is an angry man”, my primary school teacher told me. I would add: a hungry woman is an angry woman. When a nation is not well fed, when harvests swing every season and the prices of staple foods rise year-in year-out, a nation begins to become annoyed. If the situation persist, the nation starts to become agitated. Talks of labour unrest becomes common. Salaries and wages must be raised, as more money is needed to pay for increasingly expensive food. Inflation rises. The government steps in, a subsidy program here, another one there. But this is temporary respite. If the rain does not fall as ‘planned’, or if the harvest is not stored in the right way, or if the rain does fall but the crop is plagued by army worms or other pests, the problem continues. If this cycle persists, even if the best roads are built, a sense of displeasure remains. You see, it’s hard to be happy when you’re hungry. A young nation lacking proper nutrition is like a large army without sufficient boots. You may be well equipped, but you will not march far.
Kenya has long suffered general food insecurity. The stocks and prices of staple foods have been so unstable for so long that it is not unusual for the nation to be facing several food crises every year. Yet we are blessed with natural endowments that should make Kenya a net exporter of food. We have plenty of arable land, our soils are fertile, the weather is fair, we enjoy plenty of rainfall and are blessed with fresh-water lakes and rivers, and even underground aquifers. Furthermore, we have plenty of unemployed hands needing jobs and a heritage of farming, so getting Kenyans to farm would not be particularly difficult. No Kenyan, really, should be going hungry.
While the Big Four are noble and ambitious objectives, with a relentless focus on this singular mission, Kenya can become food secure within the next 5 years. The Galana/Kulalu irrigation project presents the President with a wonderful opportunity to ensure that Kenya becomes food secure, while creating a worthwhile legacy for his presidency.
Every other year, the country reels from the effects of a shortage of some major component of the national diet: maize and sugar tend to be the common ones. In 2017 for instance, Kenya suffered from a shortage of maize meal so serious that the matter nearly took hold as a political slogan, and the government spent billions importing maize and subsidizing market prices. And this was on top of a sugar shortage. If the harvests and stocks of maize and other major foods can be raised and kept within a predictable range, their final prices on supermarket shelves would most likely: reduce as supply is increased, and stabilise as the supply is kept within a narrow range. Who would disagree that cheap food would be good for the economy? As it stands, Kenyans typically spend up to half of household budgets on food. If this could reduce by even a fifth (to around 35%), you can imagine the stimulating effect this seemingly modest move would have on aggregate savings and investment, and consumption of other goods and services.
Kenya consumed about 30 million 90-kilogram bags of maize in 2016. Given a harvest rate of 35 bags per acre, that’s just over 850,000 acres of land. Given that the Galana/Kulalu ranch spans 1.78 million acres of which 1.2 million acres is suitable for irrigated agriculture, putting 20% of this arable land (240,000 acres) under maize could produce up to 840,000 additional 90-kilogram bags of maize. This is equivalent to 28% of the maize consumed in 2016. Such stocks, properly stored, would alleviate any shortages that could arise from the traditional sources of maize, reduce the see-sawing of prices, and ideally result in cheaper consumer prices.
The man power required to ready 240,000 acres of land for crop farming would be massive. Army-like. Even with mechanisation, it would require tens of thousands of people to fence, till the land, lay water reticulation infrastructure, apply manure and fertilisers, and sow the seeds. It would require thousands of people to take care of the growing crop. Thousands of people to harvest. Hundreds or thousands more to man the grain storage and reserve silos, and more to work the processing plants. Hundreds or thousands to take care of the farm infrastructure – fencing and security; movement to and within the farm, and post-harvest transportation; water services and reticulation within the farm; housing, food, education, healthcare and other services that would be required by the on-site labour; farm management and administration, etc. If the full 1.2 million acres could be activated, this one project could directly hire hundreds of thousands of people, and maybe close to a million overall. Given Kenya’s sky-high rate of unemployment among the youth, this one project could make a significant dent in the unemployment numbers within a short time (~5 years).
With hundreds of thousands of people working (and consequently living) within proximity of the Galana/Kulalu farm, it would be natural that capitalists would flock to the area to serve their needs. Builders would rush to build houses, educationists would establish schools, traders would set up shops, and so on. Furthermore, given the sheer supply of stock, a few uniquely enterprising individuals would consider ventures either processing the principal product. In the case of maize, these could be millers. Some would innovate new products, such as supermarket roasted maize in the style of roasted peanuts (I personally think such a product would be incredible!) or instant mahindi boilo (just microwave it for 5 minutes). A few would surely get involved in processing the bio-waste, maybe creating briquettes from the maize stalks and selling them as fuel for jikos as a substitute for charcoal. Such entrepreneurs, creating additional value from the direct farm produce, would create many more jobs and potentially earn massive payoffs for themselves.
After establishing sufficient reserves of the crops, the surplus could be sold to other countries, earning much-needed foreign exchange. Depending on the volume of exports, this could grow into a major forex earner for the country. And if we pleased, we could use these proceeds to set up a national food security fund. The fund could be used to subsidise farmers, it could pay for expanded production of other major crops, or any other use that Kenyans may find viable.
Food is a very big deal for most Kenyans, with the price and availability of food impacting most of us. The Galana/Kulalu project is already underway, with around 5,000 acres under crop. If this one project could be successfully delivered within President Kenyatta’s second term, this alone, would be a worthy legacy. Not only would it address the problem of food insecurity, it could create hundreds of thousands of jobs and tens of billions in new wealth: all good things. Focus on this big one, food security, Mr. President, and your legacy will be secured. The ‘army’, well fed, will be rearing to march.