Startup Ecosystem Report: Nairobi

Nairobi has a growing startup ecosystem with a promising future. In the Startup Friendliness Index (SFI) of the Middle East and Africa, Nairobi is ranked seventh out of the 16 cities assessed in this region.

Startup Friendliness Index scores are determined by examining 80 indicators in six domains: Human Capital, access to Finance, the liveliness of the Startup Scene, Infrastructure quality, Macro framework (describing the political and legal system), and Market conditions (such as trade balance and capacity utilisation). Cities with relatively even scores across domains receive a higher overall score than a city with strong performance in one area, and weak performance in another. SFI scores range from 0 – 100, with a score of 0 for the city with the weakest performance, to 100 for the strongest.

Overall, Nairobi’s startup ecosystem is well-positioned relative to the region. The city performs average or above in all areas, with the notable exception of the Market domain.

In particular, Human Capital is a strength for Nairobi given relatively flexible labour regulations, high levels of female participation in the economy, and affordable employees. The education system is in need of modernisation for the continued success of the ecosystem, however. The Startup Scene domain is also a strength, with many startups, including high-equity success cases, and available institutionalised resources such as co-working spaces. In the Finance domain, challenges exist regarding accessing funding, and many firms rely on self-financing for their ventures. However, there are favourable findings in terms of the high numbers of VCs and Business Angels in the city, indicating this as an area for future growth.

While transportation infrastructure is decent in the country, the Infrastructure domain generally struggles given low quality utilities at a high cost, and low levels of internet penetration in the country. Conditions such as political stability, the quality of legal support systems, and the impact of crime, are all considered in the Macro domain. Nairobi ranks approximately average in the region on all indicators, though the corporate tax rate is notably high, and corruption is highlighted as a consistent challenge. Finally, Market conditions are not favourable, given low GDP per capita in Kenya, and limited openness to trade.

Based on findings from the Startup Friendliness Index, this report concludes with a series of ecosystem development recommendations to support the continued growth of the startup ecosystem.

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