Fatma happily managed a small fresh juice kiosk near the Likoni ferry in Mombasa. She managed her two assistants who blended coconut, mango, and passion for long queues of commuters. She marketed sales during busy evenings while encouraging her team to treat customers with warmth and precision to set the business apart from the others.
Her stand attracted a loyal following. However, she noticed a pattern that really unsettled her whenever she tried to expand into a second location. Her requests for permits lingered in offices while other traders with familiar personal ties to decision makers advanced much faster.
Further, her assistants whispered about how certain competitor businesses gained favourable access to microfinance funding, strategic land positions, or procurement slots even when their products lacked distinction. Fatma tried to ignore the pattern and focus on the quality of her business.
But she watched new business entrants leap ahead of her without deeper competence or stronger customer appeal. She became increasingly frustrated because her business merit played a smaller role in her entrepreneurial growth than she expected from the onset, and unseen relationships dictated outcomes far more than open competition or capability.
A new global study by Sohrab Soleimanof, Tyge Payne, Curt Moore, and Matthew Rutherford released this week that is gaining a lot of academic attention sheds a unique light on what Fatma faces here in Kenya.
The researchers gathered a large multi-year dataset across nearly 100 countries and uncovered a consistent yet unsurprising pattern.
Cronyism dampens productive entrepreneurship by steering talented entrepreneurs away from innovative ideas and toward safer activities that require little creativity.
Individual entrepreneurs reduce risk-taking when external political influence networks overshadow merit, and new business ventures focus on survival rather and navigating political connections to survive rather than transform with innovation.
The study sadly finds that such cronyism environments encourage unproductive forms of enterprise that drain value through rent seeking and manipulation instead of through genuine contribution to society at large.
The research further reports that cronyism affects productive and unproductive entrepreneurship differently from what many expect.
Higher levels of cronyism act to suppress productive business ventures but at the same time fuels unproductive ones by channeling business effort into networking where an entrepreneur’s connections unlock unfair advantage.
The researchers warn that across all the nations studied that societies that tolerate such cronyism patterns ultimately lose promising innovators who drop out of business altogether because they sense unfairness in that hard work and creativity cannot overcome entrenched favour and bias networks.
Human beings crave fairness. So, talented individuals shift away from ideas that demand bold investment because they believe privileged political-related actors will absorb benefits of doing business regardless of skill or competency. The entrepreneurs fear that their investment, creativity, and time will not be fairly compensated.
One aspect of the study was actually surprising that concerns the rule of law. Citizens often expect strong legal frameworks to correct for the realities of unfairness.
However, the findings indicate a much more complicated picture. The stronger the rule of law in a country, then it actually magnifies the negative connection between cronyism and productive entrepreneurship.
When formal institutions like courts, counties, parastatals, etc. promise fairness but in reality, the informal networks still completely dominate opportunities, then the entrepreneurial disappointment actually intensifies.
Innovators retreat much faster because of the gap between expectations versus one’s lived experience widens and makes the credibility of the whole system erode.
Notice above that Fatma felt the same emotional drop that is described in the research findings. She admired Kenya’s strong legal frameworks, yet she still confronted barriers created by influence rather than the performance of her business.
Our Kenyan counties and national leaders can draw actionable lessons that originate from the global patterns uncovered in the study. Strong systems reward capability rather than connection.
Therefore, the systems can unlock productive venture creation, encourage broader participation, and cultivate confidence in formal institutions.
Leaders at all levels who champion transparent licensing, open procurement, predictable access to financing, and impartial enforcement can strengthen trust in the business community all while expanding the number of business startups who push the economy forward towards creativity rather than copycat culture.
In the end, communities prosper when authority reinforces fairness while removing the hidden incentives that push Kenyan entrepreneurs toward unproductive pathways.
Societies advance when they reduce reliance on quiet favour networks and instead strengthen institutions that reward genuine effort and innovation.
At home in Kenya, we hold immense entrepreneurial talent. Fair opportunity can unleash far greater value than any private relationship ever could.
Have a management or leadership issue, question, or challenge? Reach out to Dr. Scott through @ScottProfessor on Twitter or on email [email protected].
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