NAVIGATING NAIROBI Digital Innovation in Urban Transport and Logistics in Kenya Anisha Baghudana Julia Leis CONTENTS About 4 Credits 5 Executive Summary 6 Context 8 Pressures of Rapid Urbanization 10 Research Design 12 Findings 16 A Day in the Life of Nairobi’s Commuters 22 Drivers of Demand 26 Discussion 30 Appendix 1: Definitions and Acronyms 34 Appendix 2: Nairobi Transport Infrastructure Projects 35 Appendix 3: References 36 Acknowledgments 39 2 NAVIGATING NAIROBI UNDERSTANDING THE KENYAN MARKET FOR DIGITAL MOBILITY SERVICES 3 ABOUT CREDITS The Institute IBGC-MasterCard Authors Advisory Team for Business in the Fellowship Anisha Baghudana Julia Leis Christopher Tunnard Global Context Professor of Practice of International Since 2009, the Institute for Business in the Anisha is pursuing a Master’s in Julia completed her Master’s in Law and Business, The Fletcher School Global Contest at The Fletcher School and International Business at The Fletcher Diplomacy at The Fletcher School at MasterCard’s Center for Inclusive Growth School at Tufts University in Boston. Tufts University in Boston in May 2014, Jamilah Welch have collaborated to pioneer new models and Before embarking on graduate studies, specializing in urbanization and Institute of Business in the Global Context experiential learning in international business she managed healthcare and beauty development. Her capstone project through collaborative research projects. brands at Procter and Gamble across addressed the effectiveness of scenario The Fletcher School’s Institute for Business Melita Sawyer The IBGC-MasterCard Research Fellowship India, Greater China, ASEAN and planning in Nairobi and its potential in in the Global Context (IBGC) was founded Ph.D. Candidate, The Fletcher School Australasia. supporting urban disaster risk reduction. in recognition of the need for a new in Inclusive Growth offers the unique approach to the study of international opportunity to engage exceptional Master’s She is passionate about in technology Julia has prior experience living in Africa, business and capital markets—one that candidates in cutting-edge research in and entrepreneurship in emerging first in Dakar, Senegal, and most recently prepares global business leaders with frontier markets, on issues related to inclusive markets. She has worked in Africa in Ouagadougou, Burkina Faso, with essential “contextual intelligence.” growth and business. This program supports previously as a Business Teaching Fellow Millennium Challenge Corporation as a research innovation, allowing students to at the Meltwater Entrepreneurial School graduate intern working on diversified Through four core activities—research, push beyond the scope of traditional market of Technology, Ghana. She has also agricultural activities. She is passionate dialogue, education, and lab—the Institute research by engaging high-touch, in-field researched and published a paper on the about grassroots approaches to social provides an interdisciplinary lens through methods to uncover important aspects of role of information and communications and economic change and the power of which global markets and the underlying industry or economic development in the technology for growth of ICT to transform the base of the pyramid. drivers of change can be understood. IBGC’s emerging and frontier economies. microenterprises in Indonesia. She now works for an international relief Inclusive Growth Initiative aims to explore and development organization. the potential trade-offs and innovations This report is the result of this innovative needed to disrupt classical business and collaboration. economic frameworks and create truly sustainable prosperity for individuals, communities, and private enterprise. MasterCard Center for Inclusive Growth The MasterCard Center for Inclusive Growth was created to foster collaborative relationships between academia, governments, nonprofits, the social design community, and the private sector. Through the advancement of research and strategic philanthropic investments, the Center will support and enable those historically excluded from financial services and serve as a catalyst for change. 4 NAVIGATING NAIROBI UNDERSTANDING THE KENYAN MARKET FOR DIGITAL MOBILITY SERVICES 5 Image: Matatus near Kibera Government action to improve urban TFT startups played a unique role vis-à- Our research also showed that the transport infrastructure, planning, and vis government and other private sector benefit of digital mobility services was regulation remains inadequate in players by plugging information gaps restricted to high-income consumers EXECUTIVE meeting the rising demand for inexpensively. Their frugal innovations with quality access to Internet, especially transportation and logistics services. helped commuters and consumers of via smartphones. Looking to further Well-funded corporate initiatives too logistics services to work around the understand consumers of transport and have struggled to make an impact. In inefficiencies in the transport system. logistics services, we built typologies of contrast, technology startups have the three kinds of commuters in Nairobi SUMMARY The value of information generated developed services that are alleviating – taxi users, matatu users, and walkers. by TFT startups had varying impact, pain points in urban transportation. The typologies shed light on commuters’ captured in a framework called the pain points and unmet needs, pointing to Our team interviewed 65 key informants ‘impact pyramid’. On a scale of low potential business opportunity. Nairobi, the capital of Kenya, is facing critical transportation and completed 16 observations in Nairobi to high impact, innovations ranged in June-August 2014 to understand the from knowledge creators, to decision Recommendations are made to state challenges. Traffic-related congestion, high road fatality rates role of startup innovation in improving enhancers, to trust builders. Startups actors and the innovation ecosystem to and an unregulated mass transit network have been critical transport and logistics. We found 30 had to address the large trust deficit make the enable more ‘inclusive design’ technology-for-transport (TFT) startups among Kenyans to create high-impact of digital mobility services. Inclusive issues for a long time in East Africa’s most populous city. Rapid with creative innovative services in the innovations. For this, they were innovation can transform the role of taxi market, in cashless payment systems adopting different approaches, from tech-for-transport startups from urbanization has aggravated these problems, resulting for public transport, in last-mile delivery, building capacity to leveraging providing symptomatic relief to and a host of other areas. community networks. sustainably bettering transportation in in a highly inefficient and inequitable transport system. the long term. 6 NAVIGATING NAIROBI UNDERSTANDING THE KENYAN MARKET FOR DIGITAL MOBILITY SERVICES 7 Multilateral agencies and non-profits Rising Challenges in Figure 1: How Do People have served East Africa for many years Transportation Commute in Nairobi? from Nairobi. Now, many multinational CONTEXT companies, technology startups, and With increased people and goods social enterprises are setting up movement, Nairobi has become one of operations and research labs in Africa’s the most congested cities globally (IBM 9% Home to the mobile payments revolution, Nairobi, ‘Silicon Savannah’. Nairobi’s economic Global Commuter Pain Survey, 2011). growth has been accompanied by a Traffic costs the city $570,000 a day in 15% surge in urbanization and consumer lost productivity (Bloomberg, 2014). the capital of Kenya, is one of the most promising Nearly half the population is unable to demand. One sector that has been 47% frontier markets in the world. profoundly impacted by these changes is afford motorized transport and only a transportation. third use matatus (ITDP, 2013) despite 70 percent having access to them (Nyasetia, 2013). Traffic-related road 29% accidents are the third leading cause of death after malaria and HIV/AIDS (Nyasetia, 2013). WALK PRIVATE VEHICLES MATATUS MISCELLANEOUS (BODA-BODAS AND BICYCLES) Source: ITDP, 2013 8 NAVIGATING NAIROBI UNDERSTANDING THE KENYAN MARKET FOR DIGITAL MOBILITY SERVICES 9 URBANIZATION, TRANSPORT, AND DIGITAL INNOVATION Kenya’s urban population is growing much faster than the global and African averages, putting pressure on the transport systems. Weaknesses in Public to lower socioeconomic classes, are incubators, innovation and research labs, Transport System forced to travel long distances, putting seed capital, and startup competitions matatu commutes beyond their range of have become ubiquitous. In more The matatu industry has struggled with affordability. Documented accounts developed markets, technology startups regulatory failures and wide-spread show thousands of workers from Kibera such as Uber and Ola have created corruption. The $2 billion industry has no walk up to 20 kilometers to work every discernible consumer benefit without state ownership, as it began as an day (Kenya National Assembly Official any systemic change in transport informal commute service. While it Report, 1985; ITDP, 2013). infrastructure, policy, or planning. In fact, accounts for 5 percent of Kenya’s GDP their popularity has sparked regulatory Additionally, transport infrastructure (Nyasetia, 2013) and employs 300,000 changes, and the data they generate development differs by the level of Kenyans as drivers,