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

Food first: Fixing food insecurity in Kenya

“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.

Food security - can we accomplish it
Yes! Source

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.

 

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.