Kenya’s Startup Bill: What Is It Trying To Achieve?

Kenya’s Startup Bill was published on 14^th September 2020 through The Kenya Gazette supplement No 163 (Senate Bill No.16) and is set to be debated in both Senate and national assembly before becoming law.

The Impact of innovation linked to startups in Kenya has been felt socioeconomically both locally and globally with the most successful and recognized innovation being mobile payments company M-Pesa (present in nine other countries apart from Kenya: Albania, the Democratic Republic of Congo, Egypt, Ghana, India, Lesotho, Mozambique, Romania and Tanzania).

M-Pesa has contributed to financial inclusion in Kenya with an estimated 70% of the adult Kenyan population uses M-Pesa compared to 31% using banks. Furthermore, according to studies done by economists from MIT and Georgetown University, M-Pesa has lifted 194,000 Kenyan households–2% of Kenyan households–out of extreme poverty.

Other notable startups in Kenya that have had an impact in various industries include Cellulant, Twiga Foods and M-Kopa. These startups took a lion’s share of the funding raised by Kenyan startups (total Kenyan funding was 17% of African startup funding in 2019).

The startup bill seeks to significantly harness the potential of startups for the socioeconomic development of Kenya. Although the bill is much more comprehensive, I will only focus on the thematic areas of mainstreaming startups, encouraging stakeholder collaboration, and startup incentives.

Mainstreaming Startups

The startup bill seeks to mainstream and decentralize innovation through startups at both national and county levels of government through the establishment of a conducive policy environment, allocation of resources through budgetary allocation as well as fiscal support.

The startup bill provides a foundational framework for achieving attractor state or an ideal entrepreneurship and innovation environment through adoption of the triple helix model that emphasizes active collaboration between government, academia and private sector.

For instance, at the county level of government, counties can establish a startup incubator and either physically run it within a county owned office space or collaborate with independent incubators located in the county to run such a program. Similarly, the county government can rope in institutions of higher learning within the county for research support to startups as well as other private sector players who may provide markets to startups through commercial contracts or seed funding to startups. Similarly, counties will be required to allocate startup activities in their budget.

Encouraging Stakeholder Collaboration

The startup bill seeks to address major challenges faced by startups that hinder their growth. The main challenges faced by startups are access to various forms of financing, access to market and market intelligence, intellectual property filing, taxes, office space, research, business registration and closure among others.

Though the comprehensive conversation to address these challenges are ongoing through public participation, the bill currently has made attempts to address them as follows: access to financing shall be approached from a point of de-risking startups through the establishment of a framework that puts into play startup funding players such as business angels, venture capitalists, and private equity players as well as the public through the capital markets authority. The details of how the framework will work is something that the stakeholders must urgently address. Similarly, a special registrar will be appointed to set up and maintain a national startup database which will act as a good reference point for investors to research and invest in startups.

The bill tasks the Kenya National Innovation Agency (KENIA) with the task of developing an improved mechanism that will enable startups efficiently and effectively file for their Intellectual property.

Startup Incentives

Additionally, the bill espouses to provide various incentives for startups. Tax breaks on corporate tax, VAT, special capital deductions that are unique to startups, and hyper depreciation for startup centric hardware are some examples of such incentives, although further negotiations are needed to finalize a workable list of incentives.

A provision for rapid and cost-effective business registration and closure is also being considered given the unique nature of startups that work in a very uncertain environment as well as providing room for experimentation without being penalised for it.

The startup bill, if well implemented, is going to change Kenya’s entrepreneurship topography for the better and all hands must be on deck to participate in its success.