Eric Kinoti is a rare breed. He’s young, Kenyan and successful.
But that’s not why he’s rare; it’s what he represents – and what he represents is the “missing middle”.
In Kenya, we have a series of large national winners in the mould of Safaricom and Equity Bank, and thousands of microenterprises, but what we are missing is the beating heart of any economy – the engine room, if you will: small and medium-sized enterprises (SMEs).
In developed economies, SMEs make up over 50% of GDP and over 60% of employment. But in developing nations, such as Kenya, there is a gap between those established businesses and our start-up scene. Indeed, the stats are less than half: SMEs constitute 30% of employment and 17% of GDP, according to the Harvard Kennedy School.
This week Kenya becomes the sixth host of the Global Entrepreneurship Summit (GES), following the prestigious event’s previous around-the-world journey from the United States via Turkey, the United Arab Emirates, Malaysia and, last year, Morocco.
And as we prepare to host one of the world’s biggest summits, we must ask ourselves: are we creating an entrepreneur-centric environment that will build the next national champions?
Or are we missing an open goal?
The Kenyan Government, past and present, has installed some promising policies: the Youth Enterprise Development Fund, established in 2006, is one. Nearly Kshs4 billion has been invested in supporting the fight against youth unemployment – a scourge of Kenya, or an untapped resource, whichever way you look at it.
Other inititiaves, such as rewarding 30% of Government tenders to youth, the disabled and women, also augur well for the future.
But are we giving our youth false hope? The stats tell a grim story: nine out of ten start-ups fail; they fail even before they get a bona fide opportunity to test their business idea.
Sure, there will be youthful champions such as Trushar Khetia, who built a multi-million dollar retail and advertising company.
But he is the exception, rather than the rule.
The road from start-up to ‘established business’ is a grisly one, littered with bodies and entrepreneurs who huffed and puffed – failed – and then dusted themselves down again to give it another shot.
These were expensive lessons learned.
The myriad reasons for start-up failue, from incompetence that includes emotional pricing and living a lifestyle beyond your firm’s means, are well known to the so-called “missing middle”. They have earned their stripes. Their stories are stories of trials-and-tribulation; it’s not the Hollywood-ised portrayal of overnight success. Scaling a business is incredibly hard work.
And this is a lesson that must be properly communicated to our avid youth.
Across the region, we are already celebrating the so-called “missing middle”, a search – now in its eighth year – that is being driven by our very own Nation Media Group and global auditors, KPMG, in the “Top 100 Survey”.
This is the right road to trek: celebrating the ‘next big things’ in Kenya, who can then scale to become African champions.
Last year, real estate business Optiven Limited, was voted the top “mid-sized business”.
But it is the likes of Optiven – and Vehicle and Equipment Leasing Limited, an independent asset leasing company voted second in the survey, and Kinoti’s Shade Systems E.A Ltd, which came third, producing high-quality tents, tarpaulins and garments – who play a crucial role in the continued growth of Kenya.
You may never have heard of them, but these are successful businesses whose turnover is between Kshs70 million ($700k) and Kshs 1 billion (approximately $10m).
And they should be celebrated as publicly as billboard posters for the Lupita Onyangos of this world because it is these businesses who can tap into Kenya’s pool of youth talent: 17 million people are unemployed across the nation, 70% of whom are aged between 15 and 34. This represents one of the great, untapped human resource pools of our time.
In time, these SMEs could become Vision 2030 national champions.
Like a lot of things in life, there’s often someone who has traversed the road you hope to travel.
In Kenya’s case, we can look to the historical signposts that Singapore and Israel have left for us.
Singapore, a tiny island of 5.4 million people, was hardly blessed with entrepreneurial flair in 2010. Just five years later and its ‘Block 71’ has metamorphosed into what the Economist dubbed “the world’s most tightly packed entrepreneurial ecosystem.”
How did it do this?
Venture capitalist investment in its tech sector now stands at more than $1 billion, whereas Kenya’s – despite all the hype around Silicon Savannah – still represents meagre sums.
Singapore’s business-friendly environment, made up of straightforward rules, the ability to set up a business in a matter of hours, a cuture where intellectual property (IP) is respected and the law transparent, have helped. This was buttressed by serious Government support: they set up a Technology Incubation Scheme, offering 85% of investment if a backer puts up 15%. This worked like bees to honey for global investors coming in.
A liberal immigration policy, attracting talented foreign nationals to help blood local talent, was even supported by Prime Minister Lee Hsien Loong. On Facebook, no less.
This is where support for the “missing middle” can help young Kenyan entrepreneurs sustainably. Creating policies that are entrepreneur-friendly – ‘Buy Kenya, Build Local’ is one example – will have a knock-on, positive effect for our youth.
The time it will take an SME to scale from a few-hundred in size to 1,000-plus will be much shorter than the giant leaps it will take a start-up to do the same. Those SMEs then become consumers of start-up services.
Look, too, to the United States. We can learn a thing or two from President Barack Obama: one key takeaway from his Presidency is a series of entrepreneur-led policies which help unlock access to capital; connect mentors to entrepreneurs; reduce barriers and make the state work for the entrepreneur; accelerate innovation from lab to market for winning technologies; and unleash market opportunities in national imperative areas such as health and education, irrespective of age.
The White House’s Start-up America initiative drives at the heart of what makes America tick: SMEs – or “the missing middle”.
Kenya has a bright future, but it could be even brighter.
“Give a man a fish, you feed him for a day. Teach a man to fish, you feed him for a lifetime,” the old adage goes. The culture of tenderpreneurialism will never achieve this nor will quick wins. Youth-oriented internship programmes and skills development, in partnership with SMEs, and cultural transformation that challenges and changes mindsets, will teach our youth to fish.
Kenya’s mushrooming youth population, are hugely important for our future. But are headline-grabbing, youth-centric initiatives the only road there? Or should we re-think and promote poliices that are all-encompassing with a broader goal of creating “the missing middle”, touching entrepreners of all guises, whatever age, race, gender and background, with the ultimtae goal that any SME that scales will create employment, train youth and develop opportunities so critical entrepreneual skills can be learned.
Like Start-up America, these policies can include eliminating capital gains taxes on SMEs, faster patent applications, launching policy challenges to accelerate innovation in health, energy, education, social services and boosting access to seed grants for innovative start-ups.
And a final view point: could Kenya also be the home of African innovation, attracting African, American, Canadian and Indian entrepreneurs – and others – all with a hunger to solve our continent’s problems? If so, we have to harness the Kenyan spirit of entrepreneurship and innovation, which should be a fundamental building block to grow this ecosystem.
Is Kenya ready for this to be the testing ground and melting pot and a true African Silicon Savannah?
*This article originally appeared in Kenya’s Business Daily newspaper, ahead of the Global Entrepreneurship Summit (GES)
