Silicon Savannah

This article is taken from the newsletter I write with my partner, Owen. You can subscribe here to follow our journey to be forever location independent, what we learn along the way, and our real personal updates on our travels, careers, and relationship.

Over the past two weeks we met a lot of people in Nairobi, from aid workers in the slums to C-suites at the mega companies. Many of our fundamental assumptions about Kenya have been shaken through the process.

On this trip we’ve gone into each place asking why is this place the way it is? How did this place develop into a startup hub? This was the same for Nairobi - how come when the world talks about African startup scenes it’s all about Nairobi for East Africa and Lagos for West Africa? Lagos is the largest city in all of Africa with 21 million, which inevitably creates opportunities. However, Nairobi can hardly compete with just under 5 million.

Here are the top three reasons why Nairobi is a hub

1. It’s a nice place to live physically because there’s nice weather, hikes nearby, and the ocean a short flight or train ride away for holidays

2. One of the two main centers of the UN across the continent is here in Nairobi. This means already a lot of expats and therefore services, restaurants, and a whole ecosystem already built for expats. There is a lot of development funding here because of the UN’s proximity.

3. All business is conducted in English, yet, you don’t feel like you’re in Europe (ahem Northern Africa, South Africa). If you’re into emerging markets, communication would be easier in Nairobi than other hot markets like Latin America or South East Asia.

More expats attract more expats. More funding attracts more funding. It's a cycle.

Speaking of funding, there is a lot of bias towards funding more expat started companies. We’ve chatted with a few VCs, and the common answers are that expats are more likely to start businesses that attract venture (dream bigger vs SME) and that the communication, networking, and pitching ability is simply stronger amongst expats. These expats are typically those who came here to join a startup and after a few years decided to start their own.

An example of expat/rich Kenyan city life: The Alchemist Nairobi - Food trucks and fancy treehouse restaurants by day, party central with live music by night (Oktoberfest Nairobi was hosted here).

The Scene

Here we'll share some snippets from startups we spoke to and the unique challenges they face.

Jumia - Everyone has heard of the e-commerce startup that IPO’d. One problem logistics companies have to deal with in Africa are places with no addresses. Jumia’s UX requires users to manually fill out the address (without google autofill like Uber) and pin their location.

Upon receiving an order or when a delivery is ready to happen that day, the delivery driver calls the customer to confirm the address and availability. This is because sometimes the person ordering may not be the smartphone user. The staff also need to call the customer multiple times to ensure they are home at the time of delivery - it seems like once is enough until you learn about “Africa time” = not on time.

Even after the many calls, sometimes a customer would still not be home at the time of delivery. There's a huge issue around logistics of handling redeliveries. Jumia has to develop very unique internal operations in dealing with shipping logistics, returns, and customer and seller support - made especially difficult since many still pay cash on delivery.

M-Kopa - Co-founded by one of the creators of M-Pesa, the aim was to allow people to buy large electronics in installments using M-Pesa. They quickly discovered people had no use for large electronics because they didn’t have enough electricity, so the company pivoted to selling solar panels in installments. By 2018, over 500,000 homes had solar panels wired up by M-Kopa. Now they’re working on designing low power televisions that can run all day just off solar power.

Swvl - a Cairo based startup famous for raising $42 million earlier this year, the largest round an Egyptian startup has ever raised, allows users to book fixed-rate rides on buses and vans in their network - often a premium version of public transport. They, along with Safaricom backed Little Shuttle have had trouble competing against the local Matatus (minivans) that are Kenya’s public transport within cities and between cities.

Turns out the reason these new human logistics startups keep getting shut down due to regulation with the government is that the existing network of Matatus is run by cartels. In order to run any form of transport using minivans or scooters, one has to strike a deal with the leaders running the Matatus.

Safaricom - The godfather of the tech community. It is a telecom company started by Vodaphone (a European company) and the Kenyan government. Everyone has a Safaricom sim card and everyone, from high-end restaurants to grocery stores to drivers to vendors in slums use M-Pesa, the mobile payment application made by Safaricom. It is what makes Kenya one of the world leaders in mobile money. More on this next newsletter.

With their mass penetration of agents (those that help deposit and withdraw money into M-Pesa), they are now expanding into digital farming. They have already signed on 1.5 million small scale farmers to be their exclusive distributor and will use agents to facilitate agriculture education, Agritech, and resource distribution to the farmers.

What’s especially impressive about M-Pesa..

What surprised us most about Kenya was that it felt like we were back in China in many ways. Aside from being a spitting image of a fourth-tier city (like the Ivy visited) in the greater downtown area, Kenya is incredibly advanced with mobile payments.

In every scenario from paying Uber drivers to tipping tour guides, to buying train tickets to paying a restaurant or a utility bill, everyone uses M-Pesa.

M-Pesa was started by Safaricom, the main telecom company we wrote about in our . It was just intended as a corporate social responsibility project to help with remittances in rural areas, but it took off much more than anticipated.

One of the reasons M-Pesa has succeeded to get Kenyans cashless is the agency model. While you can deposit money online (we used an app called Sendwave built for foreigners), people primarily withdraw and deposit money through designated M-Pesa agents, and agents are everywhere.

There are over 160,000 agents countrywide in Kenya. Anyone can apply to be an agent so long as certain requirements of being a business entity are met and you have enough reserve cash. Some people work full time as agents, opening small booths to do so, but what really makes them so prevalent is that all kinds of businesses from gas stations to pharmacies double as M-Pesa agents.

With that many agents across the country, if a grandma in a rural area wants to withdraw money her grandson hustling in the big city sends her, it is more convenient for her to do so via M-Pesa at an agent in the community than to travel miles to the nearest bank.

The agency model works for developing places like Kenya for two reasons: many people are unbanked (31% of adults worldwide, 20% of Kenyans still), and many people don’t have smartphones (70% of Kenyans). These numbers make agents well suited for the physical transactions necessary to bridge the offline and the online.

The low smartphone use also explains why M-Pesa’s interface requires you to enter till numbers when making transfers, instead of using QR codes like in China: the interfaces are built to be usable by basic T9 phones as well (remember those?). They also work via USSD, which is like an interactive SMS, instead of being solely internet reliant. This makes it usable for the large populations in slums that only have a cell connection without data access.

The agency model is now being applied to other services like insurance. There are still many possibilities for applying it to other industries, as well as to other countries with similar demographics. Maybe one of our readers will be one to take it on...

Digital Currencies in the Slums

Along with seeing M-Pesa here, we also got a taste of a different kind of digital currency that’s helping people get banked. Owen has been doing some contract work with a fintech startup, Sempo (we’re hiring!), and one of their partnerships is in Kenya with a non-profit called Grassroots Economics that is empowering marginalized communities to invest in themselves.

They do this by creating a digital “community currency” within these remote villages and slums. Wealth is generally extracted out of these places through the goods and services imported for daily needs. The community currencies are meant to be spent the same as real money with the difference being wealth generated would stay within the communities. They can be cashed out for Kenyan Shillings but with withdrawal limits, so they are essentially real money (what is money actually anyways?). Once enough businesses accept them as a form of payment, there’s no longer a need to cash them out, and new businesses become incentivized to be created to serve the community itself.

With Grassroots, we went to one of the slums in the city, where people live on just $1 a day. Here’s a young man who runs a corn flour mill that accepts Sarafu, the name of the community currency.

We also saw a bootleg CD shop that accepted Sarafu, an example of a service created for the community itself. Because people don't have much access to internet, if you wanted to watch a movie, you can ask them to download it then burn it onto a CD for you.

There is no access to running water in the slums, so someone wheels over clean water from the richer areas, sometimes stealing it from the pipes, sometimes buying it in bulk, then selling it at a mark-up.

Some of the accessible schools were straight out of a scene from those World Vision commercials. This shed holds 400 students of all grades separated by black boards. While in class, you can hear the sounds of the other classes because there’s no actual walls between them. Parents can pay for school fees with Sarafu.

Below left is another school that we visited, where not all lassrooms yet have tables. Below right is children walking to class in one of the remote village communities. All students need to wear uniforms for the school to be federally acknowledged as a school. Being a legitimate school means the government can help provide you with teachers.

Community currencies also get used locally as a means of savings. People form SILC groups (specialized investment and lending corporations), where they pool money together each week into a shared fund. If someone has a need, they can take a loan from the pool and return it back over time. Here’s a weekly meeting for one of these SILC groups.

And that’s it for the poverty porn. Speaking of, here’s a card game we played with some of Ivy’s friends in Nairobi. It’s Cards Against Humanity but for humanitarians, called Jaded Aid.

The difference in quality of living really is stark even between neighborhoods that are literally next to each other. After our visit to the slums, we took a short 20 cent bus ride and ended back where we were staying. There you can find amazing Chinese food (Chinese penetration is growing but tend to keep to themselves), hip cafes, bars, malls at western prices, avocados for 30 cents, and steak for $10.

And from where we were staying, if you then took a $2 Uber ride another mile away, you’d be in the rolling hills of the Crazy Rich Kenyans. Here it’s hard to see much because everything’s behind gated communities, but occasionally you’ll catch a glimpse in the distance of some mansions. 

Apparently many of the richest people in Kenya are Indians that immigrated four generations ago to work on the railroads. Their families now make the furniture in everyone’s homes and work in other such traditional industries. The other extremely wealthy people are of course the politicians.

It was an amazing trip exploring what living in Kenya is like and why people move there. There are so many opportunities to innovate and build as the infrastructure is growing exponentially, the population is young and willing to try new things, mobile payment penetration is already there. Can’t wait to visit again soon!