More startups in Kenya have shut down since 2022 than they have been created in the country, an unfortunate development owing to many factors, including funding difficulties, and harsh economic conditions, amongst others.
Before the inefficiencies that began in 2022, the East African country had enjoyed an influx of startups since 2016. However, the downturn since 2022 has been attributed to harsh market conditions in the country. There are also reports of the existence of taxes that make it difficult for startups to grow in Kenya.
One major issue responsible for the folding up of many startups is funding, a lot of startups ran out of money after launch and investors who have previously kept businesses floating through funding are now less willing to invest due to the instability of the economy. Zumi, Kune, Skygarden, and more recently Sendy have shut down due to funding issues.
More recently, Peter Njonjo, co-founder and CEO of Twiga after the startup laid off 283 staff in a statement said that the macroeconomic climate has changed substantially in the past 24 months, both locally and globally, driving up the cost of capital.
A Common Reason
Kune, a food tech venture shut down after failing to raise Sh30 million in investor funds in the face of rising operational costs.
“With the current economic downturn and investment markets tightening up, we were unable to raise our next round,” Robin Reecht, founder of Kune had said in a statement.
Zumi a B2B e-commerce set up shut down due to its inability to raise funds to fuel the high operational cost. The company announced via a LinkedIn post that “The current macro environment has made fundraising extremely difficult, and unfortunately, our business was not able to achieve sustainability in time to survive.
Like Zumi and Kune, Sendy, a logistics company, also ran out of funds and is shutting down. Sendy had initially embarked on a phased layoff of its workforce in July 2022. Meshack Alloys, Sendy’s co-founder, confirmed that the startup was in the middle of an acquisition process. “We will issue a formal joint statement in two weeks or so. In the meantime, we are unable to comment on further details at this time.”
Notify and Wefarm are included in the list of Kenyan startups that have shut down operations. According to Sofie Mala, WeFarm’s Director of Growth, the shutdown was due to harsh market conditions which make it difficult to scale.
Economic hard times have also contributed to the shutting down of startups as people will patronize brands out of necessity, and luxury will have to go to the bottom of the list while people go for the more pressing needs. Kenyans are ditching services or goods that seem luxurious and instead opting for more affordable and needed options.
European Alliance
Kenya shares trade relations with both Russia and Ukraine and the country exports and imports commodities to both countries, which it gets revenue from. With the war and sanctions on Russia, Kenya is unable to continue its exports to the country thereby affecting local farmers and business people.
Kenyan businesses have also been unable to import commodities from Ukraine, causing scarcity and a price hike for the commodities. The ongoing war has impacted the prices of things in Kenya, and as a result, the purchasing power of citizens has been reduced, causing them to cut down on expenses and only purchase services and goods out of necessity.
Bobby Gadhia, CEO of Anza and owner of the defunct tech firm, PC World Limited which collapsed in 2016 after being in the game for 21 years, believes that businesses fail because entrepreneurs do not do their due diligence.
“Most start-ups and entrepreneurs are emotional and over-optimistic about their business ideas. They start these ideas without proper planning and they are disillusioned by the success of Silicon Valley,” says Mr Gadhia
“The tech sector is one of the most stressful and demanding that one can ever venture into. You have to possess balls of steel to navigate and survive. It is not for the faint-hearted.”
Mitigating Shutdowns
More Kenyan startups are now finding it difficult to raise funds. According to reports, investors are now less willing to invest in these startups as a result of economic instability coupled with high operational costs; taxes, and low purchasing power.
Creating an enabling business environment along with locally institutionalized funding infrastructures, are strategies to mitigate the several shutdowns in Kenya.
According to the World Bank’s annual ratings in 2019, Kenya ranks 56th among 190 economies in the ease of doing business index. Even if the nation has shown itself to be relatively supportive of startups, there are still issues to address if it needs to lessen its shutdown issues.
The capital gains tax rate is 15%, and the annual corporation tax rate for established enterprises is 30%. A 1.5% tax is applied to online enterprises. Regardless of the other reasons affecting Kenya’s startup decline, the government’s actions and inactions can significantly improve the prospects and durability of these firms. An atmosphere that is more welcoming to new businesses, with lax regulations, laws, and taxes for business owners.
The government can also provide funds and grants to startups, this could be in the form of collaboration or setting grants to help very promising businesses who are struggling.
