Team KenyaCap were overwhelmed by Kenya’s striking beauty and its people’s warmth and personality. It was saddening therefore to watch as the nation faced waves of protests throughout the summer. These were primarily against the rising cost of living and proposed tax hikes. This unrest, born out of socio-economic challenges, disrupted daily life and, unfortunately, turned violent, claiming lives and affecting the nation’s stability.
This blog reflects some of our observations from our time in Nairobi, where we delve into the link between Kenya’s macroeconomic problems and the social unrest, as well as how the work of some of the amazing startups that we met with is poised to address some of these issues.
The cost of living crisis and social unrest
The summer in Kenya was marked by protests that engulfed the streets of Nairobi and reverberated across the country. These protests were a response to the cost of living crisis and the proposed tax hikes by incumbent President Ruto, who emerged victorious against Raila Odinga in the previous year’s election. Odinga had contested the results of the election, but this challenge was rejected by the Supreme Court and observers described the elections as largely peaceful and transparent. However, Odinga continued to claim victory in the election, and repeatedly rallied his supporters to protest. These protests caused major nationwide disruption, with offices and schools closing and most were urged to stay home. Tragically, the unrest escalated into violence, claiming several lives.
A vicious cycle of macro woes
One of the driving factors behind the proposed tax hikes is Kenya’s struggle to service its foreign-denominated debt. The Kenyan shilling’s steady depreciation has inflated the cost of foreign debt payments, exacerbating the country’s financial woes. The social unrest and mounting debt issues have generated a dual negative impact. First, they’ve discouraged investors from Kenyan assets and projects, thereby weakening the currency further. Second, credit rating agencies have downgraded Kenya, amplifying the nation’s financial challenges and cost of borrowing. This vicious cycle has shown that the more severe the unrest becomes, the graver the macroeconomic and debt problems grow. In response, the government may resort to more stringent measures, further inciting public outcry.
The impact of a poor trade balance
Even before the eruption of social unrest, Kenya grappled with a poor trade balance, an unusual predicament for a developing nation. One striking anomaly is that Kenya imports more agricultural goods than it exports, despite agriculture accounting for a significant 33% of the country’s GDP. Moreover, 40% of the urban population and a staggering 70% of the rural population are employed in the agricultural sector. This glaring discrepancy points to a critical problem: the inefficiency of Kenya’s agricultural sector. Numerous startups, venture capitalists, investors, and NGOs we met with underscored the significance of this challenge.
Agricultural inefficiency
Addressing Kenya’s agricultural efficiency has emerged as a pivotal step in rectifying structural factors affecting the nation’s socio-economic landscape. The root of the problem lies in poor rural infrastructure and the difficulties faced by smallholder farmers, who contribute 80% of Kenya’s agricultural output. These farmers struggle to access affordable solutions to enhance their productivity and product quality. The result is a continually underperforming agricultural sector with the growing Kenyan middle class increasingly shirking domestically grown produce in favour of foreign goods.
Innovation and startups paving the way
In the face of these challenges, several startups in Kenya are stepping up to drive positive change. Their innovative approaches offer hope and tangible solutions to the nation’s problems. We were fortunate to meet with several of them over the summer, but we provide two examples of those making progress in addressing these issues:
Victory Farms: is sub-Saharan Africa’s fastest-growing fish farm. Founded in 2015 by INSEAD alum Joe Rehmann and Steve Moran, it is already the largest producer of fish in East Africa with a mission to sustainably feed 2 billion Africans over the next two decades, with tilapia offering an affordable, climate-conscious and hygienic solution to Africa’s food and nutritional challenge.
Bio: As Kenya’s middle class grows, so does the demand for higher-quality food. Bio keeps quality at the centre of its mission, employing innovative farming methods, including optimised feeds, hygiene standards and stringent testing to ensure quality control from farm to table.
A brighter future?
Kenya’s cost of living crisis and social unrest are not isolated issues. They are intertwined with the country’s macroeconomic challenges, including its struggle to service foreign debt, poor trade balance, and agricultural inefficiency.
However, innovative startups are taking centre stage in the battle against these issues. By addressing inefficiencies in the agricultural sector, enhancing food quality, and embracing sustainability, these startups are contributing to a brighter future for Kenya. We hope their endeavours will address Kenya’s challenges and inspire others to join the journey towards a more prosperous and stable nation.
