Chris BishopBy Chris Bishop|December 2, 2020|9 Minutes|In Billionaire Tomorrow

Silicon Savannah Swagger Yes - Investment Not Yet

Nairobi the capital of Kenya. They call it the Silicon Savannah where young, nimble, fingers flit over keyboards as part of a quiet, steady, tech revolution in Africa. Yet it is not an easy life in a competitive market as tech entrepreneur Kariuki Gathitu is finding out.

The fact that 34-year-old entrepreneur Kariuki Gathitu is considered an elder statesman in the Silicon Savannah says a lot about the bustling, youthful, vibrant, many say ruthless, world of tech and software in Nairobi the capital of Kenya.

It is a title he earned, in the trenches, from the day he put down $2,000 to found his company Zegetech in Nairobi. It ushered in years of slog against growing competition, that may have risen above only to see his growth stymied by a lack of foreign investment.

“We have had a good run, but it has been a rollercoaster ride,” says Gathitu.

They call them the Tandaa generation – a Swahili word that means spread. and any given day in Nairobi you can see them swaggering, in groups, down the streets. Sneakers on their feet, skinny jeans on their legs, a laptop on their back and a new idea in their head. The quality of that idea determines their wealth.

This feisty generation entrepreneur software developers can email thanks to the government’s ICT board that sponsored training ,a decade ago, to build skills and speed the quiet revolution. At the time these seeds were sown, Kenya was barely on the digital radar. These days the country is tempting big hitting investors. IBM poured $100 million into a research centre in Nairobi before even looking at South Africa the country seen as the infrastructure blessed gateway to Africa. In recent months, Chinese handset firm Transsion, from Shenzhen, moved into Africa by setting up hubs in Nairobi and Lagos.

All of this should be a magnet for foreign investors in the growing competitive developing digital space that has helped bring down data costs down to a quarter of that in South Africa.

This has helped win Kenya a place in Africa’s the so-called tech quadrangle of Egypt, Nigeria, Kenya and South Africa. In 2020, according to research by  Dario Giuliani of research firm Briter Bridges and Sam Ajadi from the GSMA’s Ecosystem Accelerator programme, there was a 40% increase in active tech hubs to 618, against 442 the year before. These hubs are the breeding grounds for young entrepreneurs: Kenya, according to the report, now has 48 hubs; Nigeria 85; South Africa 80 and Egypt 56.

One of the foot soldiers of this steady tech growth is Gathitu – a bright spark, with a level head, mature beyond his years. He has spoken at tech conferences across Africa.

Gathitu took a meandering route to tech heaven. He has been fiddling with computers since he was seven, even though but back then had few ideas of a career in IT. His burning desire was to go to the United Kingdom to study aeronautical engineering. It didn’t work out and instead, he settled for a degree in computer science from Kenyatta University in Nairobi and the precarious life of an entrepreneur.   

Gathitu is still as slim and sharp as the day, aged 24, he launched his IT business. This faith is being repaid, nearly a decade later, with a fairly solid business that turns over, according to Gathitu, $30 million-a- year.

Gathitu prospered from years of hands-on hard work coupled with a keen eye for gaps in the M-Pesa market. This is the mass mobile money moving market that has taken east Africa by storm. It allows people to transfer money to the unbanked in remote areas. The sender transfers the money to a third party – often a taxi driver – who hands the cash over to the intended. The taxi driver earns a small commission for each long-distance transaction.

What we need is economies of scale. We need to produce more software to  bring down our average costs otherwise we are going to lose out to the freelance market.

- Kariuki Gathitu

This way of getting money to the masses has been the core of Gathitu’s business. He created his own software – called cleverly M-PAYER – to move money through the growing number of cell phones. His apps help everyone from small businesses, paying suppliers, to churchgoers paying their tithes online.

This year, he has 150 small Kenyan businesses on his books and has broken into the overseas market, with new clients in Washington and Dubai. These foreign customers, looking for bargain software development in Africa, are good for turnover, says Gathitu, as they pay up to $100,000 per contract. This is more than three times what a similar job in the competitive Nairobi market would fetch.

It is a sign of youthful times that Gathitu, aged 34, is considered an elder statesman in the Silicon Savannah at a time when the burgeoning business is growing up to harsh reality. His business is hitting the investment glass ceiling that can stifle many good ideas from African entrepreneurs. A dearth of hard currency from foreign investors is strangling growth.

All this at a time when Gathitu’s small team- just seven developers – is working on a new venture that could reap rich returns. It is a so-called API gateway app that allows banks and other financial institutions to save money with a flat, once-off, subscription fee instead of paying for each  transaction. Banks in Nairobi struggle to raise this kind of money, says Gathitu. Without an injection of capital in from overseas, all this hard work on the app may come to naught.

“What we need is economies of scale. We need to produce more software to  bring down our average costs otherwise we are going to lose out to the freelance market,” Gathitu tells Billionaire Tomorrow from his home in Nairobi.

“The market has about 10 big tech companies, but there are thousands of freelancers in Nairobi who  can do a job for  half of what we can. It means we will simply be priced out of the market.”

Gathitu has run through the numbers in search of this elusive economies of scale. He reckons he needs about $500,000 to increase his number of developers to 30 within a year; and a total of about  $1.7 million within five years to bring that number up to 100 to increase production and bring down the average costs of software so it can compete with the shoal of hungry freelancers.

For four years Gathitu, has tried to entice foreign investors. In 2020, he has almost given up hope.

“Unless you have a board member from Oxford or MIT you can forget it – foreign investors won’t take you seriously ,” he says ruefully.

It appears to be a long road ahead for Gathitu. The hunt for elusive foreign investors could be as lucrative and rewarding as his first steps in the Silicon Savannah.