By Enyichukwu Enemanna
A new report by Africa: The Big Deal, a platform for startup funding, shows capital injection in Kenya accounted for 28 per cent of all funds raised on the African continent in 2023, comfortably booking Nairobi on the number one spot after it attracted a startup capital of a whopping $800 million (Sh127.2bn).
It surpassed Egypt, South Africa and Nigeria which came second, third and fourth respectively with $640m (Sh101.8bn), $600m (Sh95.4bn) and $410m (Sh65.2bn) to top the continent.
In East Africa, Kenya’s share of startup capital inflow grew from 86 per cent in 2022 to 91 per cent in 2023, stamping its dominance in the region.
The report shows that startups that raised $100,000 (Sh16m) and above in the country stood at 93. It read in part, “If we look at things from a regional point of view, 2023 has seen a rebalancing of startup investments across the continent. While Eastern Africa comes out on top, the four key regions have attracted comparable funding last year.”
With nearly half a billion dollars raised by Sun King and M-Kopa alone, Eastern Africa attracted $880 million (Sh139.9bn) in 2023, representing 31 per cent of all the startup investments on the continent.
The region equally grabbed number one position from the two it took in 2022 and four in 2021. Debt represented more than half (56 per cent) of the funding raised in the region, and overall, 130 startups raised $100,000 or more during the period.
The report further highlights that fintech led in attracting funding, accounting for about 45 per cent of the total funding. Energy-led startups on the other hand are increasingly gaining traction.
Also, within the period, Benin Republic attracted $71m, Ghana $57m, DRC $62m, Rwanda $44m, Tanzania $25m, Cote D’Ivoire and Zambia $17m each as well as Guinea which only attracted $3m.
Reflection Of Economic Growth
Reacting to the development, the President of Kenya, William Ruto hailed the country’s modest achievement in attracting startup capital, leading 53 other countries on the continent. The Kenyan leader who came to power September 2022 sees the milestone as an indicator of the nation’s economic growth.
“Proud that Kenya leads Africa in startup capital, securing an impressive $800 million (Ksh 124 billion) in 2023. Our strategic reforms have enhanced the business environment, positioning Kenya as the preferred choice for investors.
“This achievement reflects our commitment to fostering innovation and economic growth. The substantial funding is driving groundbreaking ideas, fueling technological advancements, and propelling job creation. Thanks to our innovative startup founders, Kenya is now a global innovation hub”, Ruto said in a social media post.
While Ruto’s assertion may not be totally dismissed, as the World Bank however believes that the East African country still faces several challenges to sustain its growth momentum such as heightened fiscal and external vulnerabilities manifested through high public debt, burgeoning cost of living, exchange rate pressures, global economic uncertainties, and tight global financial conditions.
For the World Bank, the economic growth which is a key driver of poverty reduction is not felt by a significant majority of Kenyans. Accelerating the pace of poverty reduction as well as strengthening the relationship between economic growth and poverty reduction remains key to inclusion, it posits.
The global lending body also advises that in the tight fiscal environment which Kenya has found itself, there is need to focus on longer-term growth and strengthen inclusion for growth to translate into improved well-being for the society.
“Kenya will need to balance the short-term challenges of macroeconomic stability with the need to focus on policies for achieving longer-term growth that includes all in society,” World Bank Senior Economist, and author of Kenya Economic Update (KEU), Naomi Mathenge said on the 28th edition of the publication.
KEU also noted an improved growth performance in agriculture sector in 2023 which had faced a persistent and severe drought as well as a moderate growth in the services sector. The recovery of agriculture has led to improvements in food supply, coupled with monetary policy tightening which in a way has also assisted in dousing inflationary pressures.
Also in 2023, tourism witnessed a significant expansion, a development attributed to private sector collaboration. Also, manufacturing activity is expected to improve this year from the anticipated growth in agro-processing sector.
Ruto had during the campaigns in 2022 promised a new economic order that would address unemployment and lack of opportunities for youth, pledging to pump billions of shillings in support for small-scale businesses. He promised to establish a fund for low-income earners he popularly refers to as ‘hustlers’ that will provide them with collateral-free, cheap credit to start businesses.
True to his promise, shortly after assumption of office, he announced the establishment of Hustler Fund, aiming to provide cheap and easy loans with no need for security. The Sh50 billion annual kitty according to Ruto will be channelled towards supporting micro, small and medium, enterprises (MSMEs). It is uncertain what has become of that fund over one year after establishment.
But beyond that, Ruto has acquired the name Zacchaeus, a biblical figure portrayed as a greedy tax collector, short in height, who climbed a tree to see Jesus. This is not unconnected with sweeping tax reforms he has introduced to mop up revenue amidst heavy debt burden and widening poverty rate.
In June last year, the members of the National Assembly acrimoniously passed the Finance Act 2023, with the Ruto administration seeking to raise an additional Sh211 billion from the tax measures as it sought to fund an expanded budget owing to elevated debt service costs.
The introduction of 1.5 percent housing levy paid by salaried employees, and which is matched by employers, the doubling of value added tax (VAT) on petroleum products to 16 per cent, and the increase in the cost of sending money through mobile phones, have tormented both the startups and their employees.
While majority of Kenyan businesses grapple with high cost of energy, the government went ahead to introduce a 15 percent excise duty on advertisements on various media platforms on alcoholic beverages, betting, gaming, lotteries and prize competitions. Individuals also harvested their fair share as the government introduced two new tax bands at 32.5 percent and 35 percent on monthly employment income above Sh500,000 and Sh800,000 respectively. Economist Aly Khan Satchu said the law “represents the highest tax rate across every segment.”
Small businesses are also being hit, with a tax on their total sales increasing from 1 per cent to 3 per cent. Business owners said this will kill the already struggling small enterprises that have been reporting losses since the COVID-19 pandemic started.
“They are essentially telling us to shut down, because we will not take loans to pay taxes,” a wholesale shop owner, Moses Munyao said in the capital, Nairobi.
Cost Of Living Protests
Veteran opposition leader, Raila Odinga and his Azimio la Umoja (one Kenya) last year led calls for protests over cost-of-living crisis that hit the East African country, arising from the implementation of the tax hike which Ruto went ahead to implement despite a temporary order of the court to put the policy on hold.
This led to increase in prices of staple foods and transportation, leading to the demonstrations in which the opposition led thousands of Kenyans on several days of street protest to demand the resignation of President Ruto.
During the protests, the UN said up to 23 people were killed in clashes between police and protesters, a figure disputed by the government.
Despite the violence, the government took a firm position, with President Ruto saying protests will not be allowed as he “cannot accept anarchy.”
Dangerous Labour Migration
In December, Kenya attracted backlash when the labour ministry announced plans to send at least 1,500 farm workers to Israel despite the ongoing war with Hamas, a war that has hit its 100th day.
The announcement came nearly two weeks after Malawi sent 221 young people to work on Israeli farms. According to a BBC report, more than 10,000 migrant farm workers, mostly Thailand nationals, had left Israel since the war broke out October 7.
Kenyans reacted angrily to the planned movement of workers to the war-torn zone, worrying over their safety. At least 32 Thai farm workers were killed and several others taken hostage when Hamas attacked Israel, sparking the early October war.
Heritage Times HT had reported that a Tanzanian student Clemence Felix Mtenga who was in Israel as an agriculture intern was also killed in the attack, while another Tanzanian student, Joshua Loitu Mollel, was later confirmed killed. Critics have queried the conditions the workers will face in Israel.