Kenya has miles to travel before becoming global innovation force

Kenya has established itself as an important regional player on the continent. The turn of the century marked an economic revival that has been accompanied by a rise in citizens’ expectations.

Indeed, Kenya has now joined the celebrated ranks of the lower-middle income countries. But a prosperous society for all Kenyans has not yet been achieved.

According to the World Bank’s Country Economic Memorandum (CEM) report for Kenya, entitled From Economic Growth to Jobs and Shared Prosperity released early this month, the country’s economy remains among the poorest 25 per cent of countries in the world, with a poverty rate of about 40 per cent of the population.

The CEM identified innovation as one of three key potential drivers for Kenya’s future economic growth, along with oil and urbanisation. Innovation has generated quite some hype in Kenya.

Nairobi in particular has been touted as a technology ‘hot-bed’ with promising start-ups, incubators, and global investors and technology giants, such as IBM and Google, setting up shop and expanding operations in our capital city.

Much is known about technology innovations such as M-Pesa. The mobile-money system has revolutionised money transfers and banking for millions of Kenyans and has contributed to the increase in Kenya’s GDP from services.

Consequently, these innovations have inspired the country’s appellation as the ‘Silicon Savannah’. It also seems fitting then that the 2015 Global Entrepreneurship Summit, attended by US President Barack Obama, was hosted in Kenya, marking the first time the summit was held in sub-Saharan Africa.

However, despite the dominant narrative of high levels of innovation and entrepreneurship in Kenya, the Country Economic Memorandum reveals some unexpected findings when empirically assessing Kenya’s innovation rates by global standards. Perhaps the most surprising is that firm-level innovation rates in Kenya are both incremental and small.

Take these statistics for instance: a mere 12 per cent of Kenyan firms introduced products that were actually new to the domestic market. Also, only one out of four firms carried out any kind of in-house research and development (R&D), a key factor for achieving breakthrough innovations anywhere.

LESS IMPRESSIVE

Besides, 80 per cent of all R&D conducted was done so by just one firm. Moreover, when compared across countries, the magnitude of innovation of Kenyan firms becomes less impressive.

The share of firms spending on R&D in Kenya is 40 per cent lower than in Ghana or Egypt, and less than 50 per cent of that in South Africa. In addition, a relatively lower share of Kenyan firms acquire machinery, equipment, and software, and the same conclusion holds for spending on training. Kenyan firms also seem not to be learning much from abroad since only over 3 per cent of Kenyan firms purchased global technology-transferring solutions such as licenses, patents, and trademarks.

Delving deeper, the data also show that innovations do not appear to have a significant impact on productivity in Kenya; this further highlights the small and incremental nature of innovations in the country, and suggests that the quality of innovations needs to be enhanced.

Perhaps then it is no surprise – and as was noted at the launch of the Country Economic Memorandum – the last break-through innovation that emerged from Kenya was M-Pesa, and that too nine years ago.

So what does this mean for the future of innovation in Kenya? As we discuss in the CEM, obstacles preventing Kenyan firms from capitalizing on its seemingly strong innovation climate include a lack of access to finance, which significantly constrains investments in R&D, and an over-reliance by Kenyan firms on internal sources for financing innovation activities.

This may indicate a deficit in the research, knowledge, and information infrastructure. In addition, Kenya’s managerial capacity, which is relatively high compared to its neighbours and an asset that could support higher innovation, is still far away from the managerial frontier.

Improving the quality and quantity of tertiary education and encouraging linkages between academia and businesses will also be critical in facilitating technological innovations that can substantially increase productivity and employment in the country.

And while it is difficult to guess where the next big breakthrough could come from, one potential for Kenya could be additive manufacturing. This is the industrial version of 3D printing which has come to be described as having great disruptive potential, and does not require typical large scale-up investments.

Although in its infancy, with a slow uptake of the technology by corporates and learning institutions, investing in it could have a significant impact on manufacturing and engineering in Kenya, a country where the adoption of digital manufacturing is seen by many as a natural progression of its ingenious and entrepreneurial human capital.

Individual enterprise is clearly not in short supply in Kenya. Just take the example of young Richard Turere, a 12 year old Maasai boy, and his solar powered “lion lights.”

Many other such examples of individual creativity abound. But when it comes to monetizing and scaling up innovation at a global level, it is worth asking -when was the last time Kenyan firms did something for the first time?

The writer is the World Bank Lead Economist for Eritrea, Kenya, Rwanda and Uganda