Why a Safaricom Online Store Makes Sense

This week it was announced that Safaricom would be launching an online marketplace. I sat back and wondered why. “Is this Little Cab all over again?” You see, I hold the view that Little Cab got into the market a little late. To compete, it would have to offer outrageous benefits to customers, drivers or both, with the effect of squeezing profit margins and cannibalising the business. In time, such a strategy could smoke out weak competition from the market, but one wonders whether Uber or Taxify really can be considered weak
After a few days of ruminating on the “Masoko” matter (this is name I’ve come across for the e-commerce platform, I could be wrong), I hold the view that Safaricom’s foray into e-commerce (i) could work, and (ii) could be the new offering Safaricom has been sorely looking for. Here’s why. Potential

  1. Infrastructure
    The established online stores operating in Kenya rely on a strategy of “home” (office) delivery. You look at products online, you move to transact (you can pre-pay or pay on delivery), and the product gets delivered, usually to an office building or nearby landmark. While Masoko can (and should) have a delivery service, they have the distinct advantage of being able to allow customers to pick-up their goods at Safaricom’s already-established retail outlets. Ideally, all 45 Safaricom Shops in the country can become pick-up locations for customers, giving Masoko instant economies of scale when it comes to countrywide distribution. Because the road infrastructure is less than superb, they can avoid the cost of investing in last-mile delivery through motorbike riders, and simply leverage on what they already have (a huge distribution and retail network that works) and let the customers go to them. Or do both.
  2. Brand
    Safaricom is easily among Kenya’s most recognisable brands. We can pretty much all agree that we trust the company to offer reliable service. Masoko can (and should) be built on this foundation of brand recognition and customer trust. The more the Masoko marketplace can be associated with the Safaricom brand, the better. A goal for success can be reaching for a mental association in the customer’s mind between Masoko and Safaricom that is close to that of M-PESA and Safaricom. If customers can skip past the part of wondering if a company will fulfill its promise, and get straight to using it, that would be a major tailwind.
  3. Cash
    For Masoko to succeed at a scale that would make sense for Safaricom to keep it going, it will take a lot of cash. Cash for a massive marketing push over the next year. Cash to build a customer funnel by offering exclusives that customers want (e.g. a line of Huddah Monroe lipsticks can be sold exclusively on the platform, tickets to the next big Jameson concert could be sold exclusively on Masoko, etc.). Cash to be able to absorb the negative cashflow from the first 2 or so years of operations and still offer a great service. Cash to buy and stock hot consumer products (e.g. the iPhone X, or the Nintendo Switch). Fortunately for them, Safaricom has that cash by the bucketload. If the company can loosen its purse strings and give the startup the cash it needs to grow, Masoko stands a real chance of being a billion-shilling business (I really think so!).

10 years after M-PESA was launched, Safaricom badly needs its next new thing. With its size (~KES 1 trillion in market capitalisation), it needs its next new thing to be big. Acquisitions would only make sense in the billions. For perspective, a KES 5 billion shilling acquisition would be about the equivalent of the average net profit earned in one month. Greenfield initiatives must have the potential to grow into behemoths within a few years. For perspective, a KES 10 billion shilling new business would be the equivalent of about 1% of the company’s current market cap. From the get-go, Masoko can (depending on its strategy) enjoy the economies of scale and branding that Safaricom has already built. Network effects can be gained by offering a great market-beating service, a large variety of products and desirable exclusives. And with these 3 ingredients, the final recipe could (should? 🤔) be delicious.


PS: It is obvious that the Masoko website and apps must work well, have excellent UI (look and feel), intuitive UX (be easy to use), have a simple and reliable payment system, et al. This article assumes that.

Jam rescue: Fixing Nairobi’s public transport problem

Nairobi has a public transport problem. Our young school-going children wake up in the wee hours, before the cock crows, to make it to class on time. Our professional population is in a race to wake up earlier and earlier, just to clock-in by 8am. Traffic jams at 6am on Kiambu Road, Ngong’ Road, Mombasa Road or Lang’ata Road are so common that we no longer find it an oddity of our society. We are internalising the concept that commuting at 5:30am to a job that requires you to report at 8am is ‘normal’, and that sitting in a traffic jam for 2 hours in the evening on the way home is kawa.

The good old days | Source

The baby boomers speak longingly of their heydays, when travelling into and out of the CBD using public transport was a pleasurable experience. The Nairobi County Government recently tried to enforce gazette notice no. 4479 from earlier this year which specified the matatu termini and routes, and would effectively ban PSVs from operating in the CBD. As expected, the sector’s biggest lobby group raised a furore, threatened to go on strike and the County Government acquiesced and suspended enforcement of the notice for one month, to allow for consultation. Credit to the County Government for trying. Call me a cynic, but I am not convinced that the ‘ban’ is a viable long-term solution to our public transport problem. First, using a carrot (positive incentive) generally costs less and is easier to implement than using a stick (negative consequences). Anyone who has interacted with a young child knows that it is much easier to motivate a child into action with the prospect of a reward than with the threat of punishment. Secondly, the power in a negotiation between the County Government and the matatu operators is not as asymmetrical as one may initially think. Yes, the rules can be enforced and errant PSVs impounded. It is not possible however that all, half, or even 20% of all PSVs can be impounded. On the other hand, what if the PSVs were to go on strike? Even if just 20% of them were to down their tools, the effect on fares – those that would remain operational would likely hike fares – would raise much brouhaha. The public uproar would be most likely be untenable, and within several days the parties would be at the negotiating table. Third, it is not yet clear if those that will be mandated to operate within the CBD have the capacity to manage demand at peak times of the day.

“If residents of Nairobi in fact do become wealthier, our results predict that there will be strong growth in both car ownership and use, and in matatu demand. For instance, …in the absence of changes to the transport system in the city, relatively small absolute increases in expenditure levels for the poorest in Nairobi are predicted to lead to a net 13 percentage point reduction in walking among this sub-population. Given that approximately two-thirds of Nairobi residents are in this category, this would put an additional 8% of the population on the roadways in motorized vehicles, worsening traffic congestion and air pollution further” (Salon & Aligula, 2012, p. 75).

In their 2012 paper analysing why, where, and how people in Nairobi travel, Deborah Salon and Eric Aligula essentially conclude that the city’s public transport system is on the edge of failure. Thankfully, we can create a new way forward. One that incentivises PSV owners and operators and secures their buy-in, while creating a centralised system that gives us the benefits of an integrated mass transit service. With a new county leadership, fresh-faced folks still adjusting to their new environs and yet to begin their programs and projects, this is an opportune moment to make the necessary system interventions.

What we currently have is a democratized city transport system. PSVs are privately-owned, there are few institutionalised barriers to entry and exit, and other than the NTSA, operators pretty much run their own affairs. A state or city-owned mass transport system has been proposed many times (such as here) as the solution, and for good reasons:

  • A single operator would be incentivised to make the whole system work efficiently (rather than to optimise for the one or few routes they operate in, as is the case with private owners);
  • It is easier to set and enforce quality standards when there is only one operator;
  • The perverse incentives that motivate private operators into speeding, overlapping, and other road-use abuses would not exist for a single operator. We can reasonably expect a better travel experience for motorists and passengers. This would have the additional impact of reducing the opportunities for corruption, which has been reported to cost the industry up to KES 50 billion a year.

In my opinion, neither model can work on its own. The status quo is not working, and converting to a state or city-owned system would face incredible resistance. But what about a centralised bus rapid transit (BRT) system that is owned by the matatu owners and operators, and members of the public? A single BRT system would provide the benefits of centralisation: scheduled buses and dedicated lanes on the roads, and a higher standard of service and travel experience for commuters. As the sole operator, such a company is likely to be highly profitable, and if the current matatu owners and operators, and members of the public can own equity in this company, their economic interests can be addressed.

The BRT in San Francisco de Quito, Equador | Source

Doing it

  • This idea can be implemented in many ways. To my thinking, Nairobi should follow in the footsteps of Cape Town and conduct a thorough viability analysis and develop a business plan for the proposed BRT system (see the latest update of Cape Town’s myCiti BRT system here).
    The BRT in Cape Town, South Africa | Source
  • The state can issue a bond on behalf of the Nairobi County Government to finance the construction of BRT infrastructure, and operationalise the service. This debt may be paid back by the county government once the system is up and running, or deducted from the debts it (the county) is owed by the state. The state or the Nairobi County Government can take a 10% or 20% equity stake in the company that would be created to own and operate the BRT service. 50% of ownership can be allocated to the current matatu owners and operators to ensure they are sufficiently motivated to support the initiative.
  • As the BRT infrastructure is being built, existing PSVs can be phased out. Within the CBD, small dedicated all-weather bus stops of around 2 metres by 3 metres can be built, and the major bus parks rehabilitated. This should be ready within a year or so, and the system can be launched first in the CBD. On the 3-lane highways such as Waiyaki Way, Mombasa Road, or the expanded Ngong’ Road, one lane can be dedicated solely for the use of BRT buses and emergency service providers like ambulances and fire trucks. Like Cape Town, this lane can even be painted in a different colour for clarity. Over time the system can expand outwards, eventually reaching Karen, Kinoo, Kiambu, Juja, Athi River and all the big satellite towns around the city.
  • Commuters can use passes to enter and exit buses. These cards can be sold at a nominal fee by the BRT company, and can be credited using any of the money transfer services at our disposal, with a view to making the system cashless.
  • The buses should move according to a strict schedule. The schedule should be designed around the travel behaviour of Nairobians, optimising for morning and evening peak and off-peak times, giving commuters the peace of mind that comes from having a dedicated schedule.
  • After 5 – 7 years, hopefully when the system is running smoothly, the remaining 30% to 40% equity portion can be sold to members of the public via an IPO on the Nairobi Securities Exchange.

Our capital city badly needs a modern public transport system. One that will alleviate the traffic jams, ease the demand for parking spaces in the CBD, and offer safe, comfortable, and reliable service to commuters. But for any intervention to work, it needs the buy-in of the key stakeholders. If the current matatu owners and operators can be owners of this proposed BRT service, I believe it would be easier for them to be persuaded to support the new initiative. And if the state can recoup its investment through an IPO, it would be more amenable to financing the whole endeavour. If an intervention must be made in our city public transport sector – and it must – let it be one that holistically addresses the problem. We all want a free-flowing Nairobi. Other cities have done it. We have an opportunity to do it too, but we must do it now. Will we rescue Nairobi from the jams?


Get new articles sent directly into your inbox


Source cited

Salon, D., & Aligula, E. M. (2012). Urban travel in Nairobi, Kenya: Analysis, insights, and opportunities. Journal of Transport Geography, 22, 65–76. http://doi.org/10.1016/j.jtrangeo.2011.11.019


Making “Made in Kenya”

It’s because everybody is going to India these days. Not that I know any particular hospital there. But I am told that their hospitals typically have all the machines that could be required for any tests, and because there are so many hospitals, their prices are quite reasonable. But Nairobi! How many hospitals have equipment beyond the basics? OK, maybe Nairobi Hospital, Aga Khan, Kenyatta, Karen and one or two others, but how much will they charge you for a full set of tests?

I got this response just yesterday afternoon from a friend as we discussed healthcare, and why India in particular has become the go-to destination for Kenyans needing medical attention. “The car in front is always a Toyota”; it used to be loudly proclaimed by the SUV tire covers that Toyota Kenya used to issue their customers. I don’t know about that, but I think one would not be remiss in saying that “the car in front is usually Japanese.” But why is that? Why is it that India has become so popular for medical tourism? Why is it that a disproportionate number of the best footballers in history are from South America, specifically Brazil and Argentina? Why is it that most worldwide blockbuster films come from Hollywood? Why is it that most tech unicorns have their origins in Silicon Valley? How come most middle and long-distance champion runners are from Kenya, or that nearly everything is made in China?

Location. Location. Location.

Location matters. It seems that your odds of becoming a champion marathoner are much higher if you are born Kipsang in Keiyo than Kipling in Kensington. We can all bear witness that you are probably much better placed to have sung the song that takes the continent by storm if you live in Lagos than if you live in Lang’ata. This phenomenon where people and things with similar qualities or characteristics seem to concentrate in a certain area is called clustering. The Institute for Strategy & Competitiveness at Harvard Business School defines a cluster as a “geographic concentration of related companies, organizations, and institutions in a particular field that can be present in a region, state, or nation” (Institute for Strategy & Competitiveness, 2017). The renowned business thinker and strategist Michael Porter puts it that “a cluster is a critical mass of companies in a particular field in a particular location, whether it is a country, a state or region, or even a city” (Porter, 1998, p. 10). I have expanded Porter’s definition slightly to include footballers, athletes, and musicians, and I’m sure it can be expanded further. This is not random. Coffee and tea in Kenya are mainly grown in what were the “White Highlands” where the cool and wet climate offered ideal conditions for these cash crops to flourish. Post-independence, many of these farms were maintained by the elite who  acquired them, while the ordinary citizens who worked on the white farms went on to till their own plots. And so we have grown coffee and tea in the Mt. Kenya region for decades since. This is an example of a geographical cluster which grew out of natural factor endowments: cool and wet climate, hilly topography of the land and deep red volcanic soils. If you’re a trader in Nairobi, it is very likely that the goods you sell were manufactured in China. With a workforce of over half a billion people and heavy state investment in infrastructure over several decades, the country has built the capacity to produce nearly any industrial product. With thousands of factories on standby ready to produce your order of nuts or bolts or cars or cranes, the country has become a global leader with immense competitive advantages in low-cost manufacturing of nearly anything. In a similar way, Ethiopia has raced ahead of us to join Bangladesh and Vietnam as a low-cost manufacturer of textiles. For anyone in IT or software development, or if you are looking to outsource business processes such as customer service, you probably have a company based in India high on your list or possible service providers. The country enjoys competitive advantages in these knowledge services owing to the their vast pool of labour, good telcoms infrastructure in their major cities and the low cost base to teach these skills. Is there a region in Africa that produces more and better wine than the winelands of Cape Town? The Western Cape province of South Africa enjoys factor endowments such as warm climate and gently sloping lands surrounded by mountains that are great for growing grapes. A historic know-how-based cluster of expertise and the concentration of complementary industries in the Western Cape has made it possible for the region to process the quality and quantity that makes South Africa a leading exporter of wine. As we can see, clusters develop for all sorts of reasons: from natural factor endowments (such as coffee and tea in Central Kenya) to historic know-how (watchmaking in Switzerland), to low costs of production (China for nearly anything to do with industry or manufacturing).

So what, for Kenya?

I think Kenya can benefit greatly from implementing a well-thought-out deliberate plan that clusters our economic activities. With a blueprint that is

  • conscious of the cultures of various communities and their historical economic activities,
  • adaptive to the present spatial structure of our country,
  • mindful of weather, climate, topography, and other natural factor endowments,
  • aligned with Vision 2030 and other long-term national plans, and
  • mobilizes the political will required to implement it,

I am convinced Kenya can make huge leaps in a decade or two. The kind of leaps needed to achieve the economic goals of Vision 2030.

For example, most of the maize we consume comes from the Trans Nzoia region. With such a plan in place, infrastructure in the county can be deliberately built to facilitate growing and processing maize and the crops it is rotated with. County water dams should be built to sustain the population that lives and works there and to irrigate maize farms all year round. Universities in the county should be leaders in the region on agricultural science and research, with specializations on maize. Storage silos should be constructed in the county, or as close as possible to reduce transportation costs for harvests. Maize millers should be incentivised to have their processing mills in Trans Nzoia or the surrounding counties. Supporting industries such as seed grain producers, fertilizer manufacturers, farming equipment companies and others should be supported to ensure that they have a heavy presence in Trans Nzoia and surrounding counties. Now, this is not to say that farmers in the county should plant only maize, nor to say that economic activity in Trans Nzoia should be restricted to maize. No. Only to say that because the region enjoys natural factor endowments such as weather and climate that support maize growing, and that the communities in the area have a long history of growing the crop, it is only makes sense that the conditions for profitably and reliably growing the crop are improved as much as possible. The county is predisposed to being a major producer of maize for the country, we should do all we can to support it. The same applies to the other 46 counties, and constituencies within the counties. With such a development blueprint, physical infrastructure would be built in a way that catalyses the development of specific economic activities in clusters where economies of scale can be enjoyed. That a Kenyan looking to start a business in the supply chain of coffee should be heading to Kiambu or Nyeri, and another one interested in milling maize should be heading to Trans Nzoia. Again, this is not to say that a region or county should be engaged in one economic activity only. Just that the focus or specialization inherent in each region or county should be enhanced. To my mind, if such a development plan was strictly implemented, the economic clusters that would emerge would stimulate technological specialization and improved productivity in the area of focus. Economic opportunities would flourish at local levels as core activities and their complementary industries receive the attention and support they need for them to grow quickly. Value-adding processing industries are more likely to sprout in such clusters, attracted by the targeted supporting infrastructure that would reduce costs of production. The accumulation of specialized labour at the local level would cause a pool of specialist skills to swell, attracting even more value-adding processors and increasing the overall economic yield from a core economic activity.

Doing it

A national dialogue forum that sets the strategic agenda for the country in the next decade can be called and conducted at the national level within a year. County governments can thereafter engage at the local level to surface the deeper aspirations of the people, understand the factor endowments they enjoy, and map the competences at their disposal. Within a year of the national dialogue forum, each of the counties can have their unique county development plans in hand. And by the year 2020 we can begin to seriously implement the 47 county development plans with the aim of achieving Vision 2030.

There is value in watch brands that carry the reference, Swiss Made. There is value in being German or Japanese if you are a manufacturer in the automobile industry. There is value in being Danish if you are a maker of pastries, or Belgian if you are a chocolatier. Or being Kenyan if you are a long-distance runner. Kenya could be known for a lot more, “Made in Kenya” could mean refinement, excellence, heritage, attention to detail and prestige. Each of the 47 counties should be a hotbed for a specific thing, and Kenya can become a major exporter of that thing. Maize, handcrafts, coffee, retail, miraa, avocados, professional business services like audit, beef, beer, tech, the Safari rally, fish, films, tourism, microfinance, music, healthcare, chocolate, hospitality, fashion, dairy products, university education, potatoes, flowers, leather, sports, herbs and spices, or anything else we can imagine. Are we willing to make “Made in Kenya”?


Get new articles sent directly into your inbox



Institute for Strategy & Competitiveness. (2017). What Are Clusters? Retrieved September 25, 2017, from http://www.isc.hbs.edu/competitiveness-economic-development/frameworks-and-key-concepts/Pages/clusters.aspx

Porter, M. E. (1998). The Adam Smith Address: Location, Clusters, and the “New” Microeconomics of Competition. Business Economics, 33(1), 7–13.