The introduction of the Start-up Bill, a legislative proposal aimed at providing support and incentives for startups, in 2020, was in response to the need to create a favorable business environment, provide incentives, foster innovation and entrepreneurship, attract investment, and create employment opportunities, especially for the Kenyan youth, thus leading to the growth of the start-up sector.
The Bill, which is likely to sail through, will create a conducive environment for startups to thrive – as President William Ruto recently assured that the Start-up bill will be signed into law by April 2024.
Kenya has profoundly emerged as a prominent hub for entrepreneurship and innovation in Africa, attracting international investors and fostering a vibrant start-up ecosystem, even in tough and unpredictable business environment.
On the flipside, startups in Kenya continue to experience a surge in challenges – many Kenyan startups struggle to sustain themselves and face a high risk of failure or early exit. This has especially been the case after the Covid-19 pandemic when funding from overseas took a huge hit and reduced greatly.
Like most countries in Africa, Kenya faces the challenge of providing employment opportunities for its large and growing youth population. Despite the efforts of the SME sector, which has been a major employer of the youth, small businesses and start-ups struggle to remain resilient in the market as cash-flows shrink.
Latest survey by McKinsey and Company shows that almost 75% of small businesses in Kenya close shop after a short period, an indication that government action is needed sooner than later. Despite the doom, there is a sense of optimism among startups and stakeholders especially those in the tech ecosystem.
According to President Ruto, youth-driven enterprises were able to secure Sh107.28 billion ($700 million) in funding in 2022 alone. However, for such startups to continue contributing to the economy, they need a supportive ecosystem that would address their unique needs and challenges.
Start-ups such as Zumi and Wabi grounded in 2023 after the likes of Kune, Notify Logistics and WeFarm which closed shop in 2022. Prior to the closure of these start-ups, Kenya’s start-up ecosystem was booming managing to receive a total funding of Sh88.09 billion ($574.8 million) in 2022 as compared to Sh44.75 billion ($292 million) in 2021.
Many of the affected start-ups cited the decrease in funding as the main reason for closing shop as the tech world returned to norm following the pandemic. Recent developments have seen other start-ups, pack up and head out of the country.
MPost, which revolutionizes postal systems through mobile numbers and virtual addresses, has opted to move its base from Nairobi to Kigali, the capital of Rwanda. It cited the lack of a conducive business environment as the reason behind the move. Apart from a decrease in funding and minimal legislative support, the tax landscape in the country has increased the number of start-ups closing down and moving out of the country.
Recent tax increments, including the doubling of the digital service tax and heightened corporate tax rates, have raised concerns among tech firms. With increased taxes targeting digital economy players, discontent and unease has frown within the tech business landscape in Kenya. Startups, involved in e-commerce, mobile money transfers, and digital services sectors, are among those affected most as they face potential double taxation and the impact of new taxes on their operations.
Only by sealing the challenges of funding, ensuring a conducive business climate and favourable tax landscape, will the growth of the start-up ecosystem in Kenya be ensured. SMEs will be in a much better condition should the Start-up bill see light of day. With the right support and a favorable business environment, startups in Kenya can finally reach their potential and contribute positively to Kenya’s economic growth.
