Kenyanomics

I flew into Kenya with a lot of assumptions. Some have held, but mostly they fell away as soon as I stopped to chat to a local. In the media, Kenya is portrayed as a violent, impoverished society rife with corruption, but I can honestly tell you that this isn’t at all the case. It has its faults for sure, however I have experienced a strong community culture, that fosters a collaborative approach to life and to business. I genuinely look forward to meeting John, a local street vendor, on my trips into town – my arm is slowly filling with the bracelets he sells me. When I walk through the streets it isn’t poverty that comes to mind – it’s opportunity. Sure, poverty is there, as it is in any society, but as a whole the Kenyan’s are business minded, resourceful people. They are just waiting for a chance to carve out a living for themselves. As for the corruption, well I’m not going to argue that it doesn’t exist. It’s definitely rife, and probably one of the real issues that is holding this country back.

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We learn in university about efficient markets and perfect competition. We are told to imagine an economy with free flow of labour and capital between industries, no transaction costs, no barriers to entry, no taxes, symmetric information, and finally access to finance at the risk free rate. I’ve come to realise that the ‘Informal Sector’ of Nakuru is a pretty close imitation. Just because you work as an accountant today doesn’t mean you won’t be a farmer tomorrow. If someone sees you doing well with photocopying, they’ll open up a competitor next week. Income tax? Corporate tax? Nope. Information asymmetry?Eroded by the internet, and by the simple nature of businesses here. Finally, access to ‘risk free’ finance? Well that is where Balloon Kenya comes in. Oh, and don’t even get me started on bankruptcy costs. Kenya is not exactly a perfect market, for example taxes creep in through registration fees and through corruption.  But Nakuru certainly comes as close as I’ve ever seen.

The interesting thing is that, just as classic economics would predict, it is through removing these “perfect competition” qualities that local entrepreneurs extract profits. In the formal sector, M-Pesa, a mobile banking service that has spread like wildfire throughout Kenya, has a business model based purely on transaction costs. Java, the local Starbucks equivalent, extracts “western prices” purely through high capital investment in stores that creates insurmountable barriers to entry. And in the informal sector, the businesses that stand out do so through simple examples of the same. I’ve been working with a group of entrepreneurs from a previous program who operate a coffee cart, and they have just expanded into fresh juices. The fact that they have the money and the space for a small cooler in their cart allows them to differentiate themselves from the local juice ladies, and they are selling out of juice daily. This also implies that there are endless opportunities in Kenya, if only entrepreneurs can collect enough capital to surmount entry barriers.

I have learnt a lot of lessons from my short time in Kenya, from the potential of branding to extract higher margins, to the benefits of supply chains and inventory management in driving cost efficiencies. So if you want to step into the mind of an economist, or of an entrepreneur,Kenya is the place to be.

Written By Nick Mackinnon, 2014 Balloon Fellow

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