The water pear trees were in full bloom as Jason Eisen drove past Farasi Lane. It was September 2018, and his friend had offered him a vacant house to use as he pleased. Rather than live there, Eisen wanted to use it to plant seeds for the future: He repurposed it as the Utu House, a shared workspace for local AI and blockchain developers.
While such an establishment might be unremarkable in Silicon Valley or New York, this was Nairobi, Kenya, where Eisen is no stranger to the local tech boom. He previously worked for a Washington, DC-based consulting firm operating in East Africa building large-scale projects.
"I was seeing enormous opportunity in tech; it was a nascent-but-fascinating scene back in 2007," Eisen said, recalling his journey from earning a comfortable living as a consultant in Washington to becoming founder and CEO of Maramoja, a ridehailing service over 7,500 miles away. He also founded a second tech startup in Kenya called Utu— Swahili for "humanity," from which his co-working space takes its name.
Although the World Bank reported 73% of Kenya's population was living in rural conditions as of 2017, the country is emblematic of the macroeconomic changes happening across sub-Saharan Africa. The Western Hemisphere got a taste of such progress recently with the IPO of Jumia, a Nigeria-based ecommerce marketplace backed by high-profile investors such as Goldman Sachs and Mastercard. Upon its $1 billion-plus debut, Jumia was widely hailed as the "Amazon of Africa" after becoming the first African tech startup to list on the NYSE.
Jumia's success has been bolstered by the rise of the region's mobile economy. In October, the Pew Research Center reported a significant increase in internet use and smartphone ownership between 2014 and 2017 among people surveyed in Kenya, Ghana, Nigeria, Senegal, South Africa and Tanzania. In 2014, 29% of people there actively used the web and 15% owned a smartphone; those figures rose to 41% and 33%, respectively, in 2017. By comparison, India recorded only about 25% of adults had used the internet at least occasionally or had owned a smartphone as of 2017.
Despite such changes, venture capital investing in Africa has lagged. And Jumia's valuation at the time of its IPO highlighted the unicorn company's status as an outlier in that regard.
Eisen points to one reason for the gap: "The traditional VC model just doesn't work here. For example, the concept of maximizing the seven-year return on investment and a copy-and-paste strategy of taking what works abroad and applying an African twist isn't optimal. Africa isn't one broad market to copy and paste into—it's actually 54 different markets."
Eisen's viewpoint is rather timely, given Wall Street's perhaps mislabeling of Jumia as the so-called "Amazon of Africa." Similarly, he might cringe at hearing Maramoja dubbed "the Uber of Africa," even if that was the model that he initially set out to imitate.
A strong cultural dependence on social trust is the basis of Maramoja, which leverages various personal factors—such as a user's contact list—to recommend drivers. Eisen believes an understanding of such intimate cultural approaches is something that Uber, for example, is lacking.
"Elsewhere in the world, the question may be, ‘How do I get a taxi?' But here, the question is, ‘How do I get a taxi that I trust?'" Eisen said. "In places where institutions are weak, people rely on who they know."
This may be key as the region's macroeconomy is firing up. In January 2019, the World Bank reported GDP growth for sub-Saharan Africa is expected to be 3.4% for 2019, 3.6% for 2020 and 3.7% for 2021.
While not exceptionally high, the region's GDP growth rate forecast is competitive with East Asia's once sub- Saharan Africa's more mature economies are excluded. Disregarding Nigeria, South Africa and Angola, the region's GDP forecast is 5.4% for each year through 2021. Kenya is forecast to experience a 5.8% GDP growth in 2019 and 6% in 2020 and 2021.
While these numbers are attention-grabbing, they are shadowed by the extreme poverty that can inhibit venture capital investing. As of 2013 (the most recent data available from the World Bank), 41% of the population in sub-Saharan Africa was living on less than $1.90 per day.
Optimistically, this inflation-adjusted figure is an improvement from the 54% in severe poverty in 1990. On the other hand, the region's overall population growth means those 389 million people in 2013 had grown to represent more than half of the world's extreme poor.
A rush of cash for infrastructureAs suggested by Kenya's mobile tech advancements, modern infrastructure development may be the catalyst for a cascade of solutions to the region's inhibiting issues.
A windfall in this area could be China's Belt and Road Initiative (BRI), which is dishing out enormous sums of money globally as attractive low-cost debt to fund infrastructure projects. While the initiative's intentions have been debated, with critics calling it a debt trap, the real-life gains for Africa may be unprecedented due to the BRI's unconventional and incredibly ambitious approach.
A September 2018 report from AidData, a research lab at the College of William and Mary in Virginia, found several significant factors that may make Chinese funding attractive. Namely, China's infrastructure offerings are faster to be funded and developed than traditional processes, reach diverse regions including historically underserved areas such as Burundi, and provide complementary investments along the routes of infrastructure projects.
"Colonial-era investments were highly localized in many developing countries, setting in motion powerful forces of economic agglomeration and creating spatial inequalities that have persisted over long periods of time," the report said.
"One way to escape such traps is to invest in projects that challenge rather than reinforce pre-existing distributions of economic activity—for example, by connecting inland and coastal communities."
This approach may advance the African continent in ways traditional processes have struggled, and although the BRI isn't expected to be finished globally until 2049, there's early evidence of the transformative benefits from this type of investment.
China has already financed numerous modern railway systems in Africa to replace dilapidated Colonial-era train lines—for example, the Mombasa-Nairobi Standard Gauge Railway that runs 301 miles between the two key Kenyan cities. Costing more than $3 billion, the SGR replaced a previous narrow-gauge line that was built around 1900 and took 12 hours or more to traverse. The popular new line, which now takes 4.5 hours for passenger trains, moved 1.7 million passengers and over 5 million tons of freight in 2018.
Kenyan transport minister James Macharia has previously said the government believes the SGR will singlehandedly boost the country's GDP by 1.5%, according to the BBC. The impact of the Mombasa-Nairobi railway should only continue to grow, as the plan for the line is to extend to neighboring countries. Continued growth and connectivity across Africa should certainly catch the attention of the venture capital industry, and even amid a lack of VC funding, the continent is experiencing unprecedented changes that could break pockets of poverty and instability. Jumia has already shown that unicorns can indeed come from Africa—perhaps one will sprout from the modest house of "humanity" under the blooming water pear trees west of Farasi Lane.