Since 2022, more startups in Kenya have ceased their operations than the number of new startups established in the country. This alarming scenario can be attributed to several factors, primarily revolving around difficulties in securing funding and adverse economic conditions.
Before the downturn in 2022, Kenya had witnessed a remarkable rise in the number of startups, a trend that began in 2016. According to a report from TechCrunch, Kenya experienced the most substantial increase in funding among African countries. Outshining nations like Nigeria, Egypt, and South Africa, this East African country achieved the highest growth in funding. However, the subsequent economic decline has been attributed to unfavorable market conditions within Kenya. Furthermore, reports suggest that the presence of taxes has been a hindrance to the growth of startups in the country.
A significant contributing factor to the closure of numerous startups is the issue of funding. Many startups faced financial depletion shortly after their launch, and the willingness of investors to sustain these businesses through funding has diminished due to the unstable economy. Prominent startups like Zumi, Skygarden, and most recently Sendy have been forced to shut down due to challenges related to securing funding.
Recently, Peter Njonjo, who is the co-founder and CEO of Twiga, made a statement following the layoff of 283 staff members from the startup. He mentioned that the economic landscape has undergone significant changes over the past two years, both on a local and global scale. These changes have led to an increase in the cost of capital.
Another food tech venture, Kune, had to close down in 2022 – barely a year after starting Kenya operations. This challenge was driven by the rising operational expenses the company was facing. Robin Reecht, the founder of Kune, explained in a statement that due to the ongoing economic downturn and tighter investment markets, they were unable to gather the necessary funds for their next phase.
Similarly, Zumi, a B2B e-commerce enterprise, had to cease its operations due to the inability to acquire funds that would support its high operational costs. Through a LinkedIn post, the company conveyed that the current macroeconomic environment has created a challenging fundraising landscape. Unfortunately, Zumi couldn’t achieve the required sustainability in time to continue its operations.
Sendy, a logistics company, has joined the ranks of Zumi and Kune in running out of funds and subsequently deciding to shut down. The company initiated a phased workforce reduction starting in July 2022. Co-founder of Sendy, Meshack Alloys, has confirmed that the company was in the midst of an acquisition process. Alloys mentioned that an official joint statement regarding this matter will be released within approximately two weeks, and until then, further specifics cannot be disclosed.
Adding to this list of closures are Notify and Wefarm, both Kenyan startups that have ceased their operations. Sofie Mala, the Director of Growth at WeFarm, attributed the shutdown to challenging market conditions that hindered their scalability.
The economic challenges of the time have played a role in the closure of these startups. Due to financial constraints, people are prioritising essential needs over luxury, causing a shift in consumer behaviour. Kenyan individuals are opting for more affordable and necessary alternatives, leading to a decline in demand for non-essential services and products.
Kenya maintains trade relations with both Russia and Ukraine, engaging in the exchange of various commodities that contribute to its revenue. Unfortunately, due to the ongoing war and imposed sanctions on Russia, Kenya faces challenges in continuing its exports to the country. This situation has a direct impact on local farmers and businesspeople who depend on these exports.
Furthermore, Kenyan businesses are experiencing difficulties in importing goods from Ukraine, leading to scarcity and an increase in commodity prices within the country. The repercussions of the ongoing war have significantly disrupted the pricing dynamics in Kenya. As a result, the citizens’ purchasing power has diminished, forcing them to be more frugal and limit their spending to essential services and goods.
Bobby Gadhia, the CEO of Anza and former owner of PC World Limited, a tech firm that ceased operations in 2016 after a 21-year run, holds the viewpoint that business failures often stem from entrepreneurs’ failure to conduct proper due diligence.
Mr. Gadhia suggests that many start-ups and entrepreneurs tend to be driven by emotions and excessive optimism regarding their business concepts. This often leads to ventures being initiated without thorough planning and can result in disillusionment when comparing their progress to the successes seen in Silicon Valley.
The technology sector stands out as one of the most demanding and stressful fields to enter. Navigating and surviving in this industry requires exceptional determination. It’s an endeavor that demands courage and resilience.
An increasing number of Kenyan start-ups are currently encountering challenges in securing funding. This issue arises from a combination of economic instability, high operational expenses, taxes, and reduced purchasing power, making investors less inclined to invest in these ventures.
A Way Forward: Conducive Environment and Funding
To combat the recurring issue of startup closures in Kenya, it’s imperative to establish a conducive business environment and locally-based funding mechanisms. While Kenya ranks moderately well in the ease of doing business, underlying concerns remain that necessitate attention to minimise business closures.
Government actions play a pivotal role in the success and sustainability of startups. Apart from relaxing regulations and tax structures, providing financial support and grants can significantly boost startup prospects.
