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Mombasa emerges as Kenya’s best hub for startups after Nairobi

Mombasa city

An aerial view of Mombasa city. FILE PHOTO | NMG

Mombasa has emerged as the second most preferred destination for start-ups after Nairobi, a new report shows, buoyed by the set up of new digital companies in the county.

Latest StartupBlink Global Startup Ecosystem Index 2021 report ranks Mombasa at number 756 among other global cities such as Francisco and London for the first time.

This is a significant shift from previous years when start-ups were setting up in Nairobi, owing to its enabling environment such as tech infrastructure.

“Contributing to the improvement in Kenya's ranking for 2021, Mombasa is new to the rankings as the second city in Kenya at 756th,” the report reads.

Whereas the capital city boasted of 117 start-ups, Mombasa hosts 11, according to the report.

Some of the firms operating in the coastal city include HydraTech (software and data), Appettea (foodtech), Tekizo Africa Limited (energy and environment), Clikham IT Solutions (software and data) and MicroDam Telecomm (Hardware and IoT).

Others are Osta Tech Ltd (software and data), AAA Platforms Ltd (software and data), (marketing and sales), Studia Labs (software and data), Brance Technologies (software and data) and M-Tiba (healthcare).

Mombasa is known for its tourism industry that generates millions of shillings every year.

Over reliance on the holiday business, however, is proving a challenge to the county as the sector suffers from low bookings amid tough lockdown restrictions such as dusk to dawn curfew that have slashed earnings.

Data from the Controller of Budget showed that Mombasa raised Sh1.08 billion in the six months to December 2020, compared to Sh1.48 billion in a similar period in 2019, representing a decline of Sh403.2 million in internal revenue.

As Mombasa rises, the report, however notes that Nairobi is losing its dominance as a top destination for start-ups in Africa.

“The Nigerian city of Lagos has become the top African start-up ecosystem, ranked 122nd after switching places with Nairobi, Kenya, which now ranks 136th,” the report notes.

“By climbing to the 5th position in this region, Lagos became the highest ranking African city, at the expense of Nairobi, which is now ranked 136th worldwide, 6th in the Middle East and Africa region, and second in Africa.”

Only last year, Kenyan start-ups secured record funding in Africa agri-tech, e-commerce, fintech and logistics sub-sectors.

Between 2015 and 2020, for example, investments in the country increased to Sh26 billion from Sh20.8 billion ($191.4 million), representing 27.3 percent of the continent’s total investment.

Nigeria came second with Sh16.3 billion followed by South Africa (Sh15.5 billion), Egypt (Sh15.4 billion), Ghana (Sh2.2 billion) and Morocco at Sh1.1 billion.

“This is the largest amount of funding ever achieved by a single country. The record was previously also held by Kenya, when in 2019 the country’s start-ups netted Sh16.2 billion ($149.2 million),” Disrupt Africa Tech Startups 2020 Funding report showed.

The growth was driven by an increase in the number of start-ups that raised funding, which rose to 59 from 45, representing a 31.1 percent jump.

Out of these, agri-tech company Twiga Foods and conservation venture Komaza recorded stand-out rounds, bagging Sh3.2 billion ($29.4 million) and Sh3.1 billion ($28 million), respectively.

Others were logistics start-up Sendy at Sh2.2 billion ($20 million), retail-tech solution Sokowatch raised Sh1.5 billion ($14 million), energy ventures SunCulture (Sh1.5 billion ($14 million), Angaza (Sh1.46 billion ($13.5 million), and Solarise Sh1.1 billion ($1 million).

“This is only the fourth highest tally in terms of number of funded companies - with Nigeria, Egypt and South Africa all boasting more funded start-ups, albeit to a (substantially) lesser cash total,” the report noted.

Low confidence challenge

The Global Startup Ecosystem Index is built using data points processed by an algorithm that takes into account several dozens of parameters including the number of start-ups, the size of the domestic market, and the ease of doing business.

However, the report ranks South Africa (48) and Kenya (61) as the best ecosystems for start-ups on the continent. They are followed by Nigeria (63), Rwanda (69), Egypt (70), Mauritius (73), Ghana (81) and Tunisia (81).

Nairobi performance is buoyed by its foodtech, transportation, technology and energy and environment technology start-ups.

“Kenya improved one spot this year to rank 61st globally, 1st in Eastern Africa, and 2nd in Africa. The city of Nairobi decreased 20 spots to 136th globally, but still ranks 1st in Eastern Africa and 2nd in Africa.”

This comes at a time when local e-health start-ups are struggling to raise investments owing to low confidence on the part of international venture capitals (VCs).

While high-income countries (HIC) start-up founders as well as local expatriates with international connections find it easy to raise capital, those from Kenya struggle due to lack of confidence among investors.

For example, out of Sh22.1 billion ($207 million) that was raised by 37 e-health African start-ups last year, Sh13.4 billion ($125 million) or 82 percent went to seven start-ups such as mPharm ($52.5 million) and Copia ($32 million) that are foreign owned.

Others are Kasha ($12 million), MYDAWA ($10 million), Pharma Secure ($7.9), Healthy Entrepreneurs ($6 million) and Maisha Meds ($5.2 million).

Only one of the above-companies has an African founder or co-founder.

“African innovators who lack ties to high income countries (HIC) find it particularly difficult to raise funding. Receiving education from or garnering work experience in HICs, and having nationals from HICs as founders or co-founders on the team, can play a key role in facilitating access to global investor networks,” a report by health consulting firm Salient titled Innovation in Health Product Distribution In Sub-Saharan Africa notes.

Globally, San Francisco, New York, Beijing, Los Angeles, London and Boston offer the best hub for startups. In terms of countries, the United States (one), the UK (two), Israel (three) and Canada (four) are ranked the best.