Entrepreneurial Ecosystem Mapping in Mathare: Synthesis Report

ENTREPRENEURIAL ECOSYSTEM MAPPING IN MATHARE: SYNTHESIS REPORT

NAIROBI, KENYA

December 2018

SITE Enterprise Promotion (SITE) Center for International Private Enterprise (CIPE)

Anne Kamau (DrPH) Email: [email protected]

Table of Contents

EXECUTIVE SUMMARY ...... iii INTRODUCTION ...... 1 KEY DOMAINS AND ISSUES ...... 2 1. Entrepreneurship ...... 2 2. Policy and Regulations ...... 2 3. Finance...... 3 4. Support ...... 4 5. Culture ...... 5 6. Infrastructure ...... 6 7. Security ...... 7 8. Information and Communication ...... 8 OPPORTUNITIES AND OBSTACLES ...... 9 Opportunities ...... 9 Obstacles ...... 9 KEY CONCLUSIONS AND RECOMMENDATIONS...... 10 Conclusions ...... 10 Recommendations ...... 10

EXECUTIVE SUMMARY

This report is a synthesis of the findings of an enterprise ecosystem mapping conducted in Mathare in Nairobi between April and May 2018 by SITE Enterprise Promotion (SITE) in collaboration with the Center for International Private Enterprise (CIPE). The mapping exercise used the Organisation for Economic Cooperation and Development (OECD) Entrepreneurship Measurement Framework applied in the context of Mathare informal settlements.

Researchers obtained information through a desk review and fieldwork conducted among ninety-eight respondents in two Mathare wards – Kiamaiko and Mlango Kubwa. The information focused on enterprise ecosystems, existing domains (issues) in the ecosystem, and how they interact with each other. The domains focused on security, access to working spaces and utilities, access to affordable finance and credit, business support services and skills, access to ICT and business information, and the business environment. Gaps in the domains were identified as well as existing opportunities that could be used to harness business growth. The main identified gaps were lack of working spaces, inadequate financing, insecurity, and lack of banking services. The opportunities included good entrepreneurial spirit and positive attitudes towards entrepreneurship among existing and potential entrepreneurs for whom entrepreneurship is a real, exciting, respected, and financially rewarding occupation.

There are existing factors supporting the entrepreneurship ecosystem: ready markets for goods and services due to high and increasing population, availability of electricity and transport services, high telephone and internet connection, and the presence of several community and development organisations. Existing opportunities can be tapped to stimulate business growth and start-ups in Mathare to take advantage of the growing population. Domain gaps can be addressed through advocacy and economic empowerment programmes, in partnership with the community, national and county governments, development partners, and other organisations to improve the enterprise ecosystem in Mathare.

iii

INTRODUCTION

SITE Enterprise Promotion (SITE) – a Kenyan development organisation – in partnership with the Center for International Private Enterprise (CIPE), implemented a ten-month project in Mathare informal settlement in Nairobi. The project focused on building the capacity of the informal private sector in Mathare to engage in collective action in order to enhance business growth and the overall business enabling environment. Started in 1963, Mathare informal settlement is one of the oldest in Nairobi as well as one of the biggest in Africa and around the world. Mathare is comprised of four wards: Kiamaiko, Mlango Kubwa, Mabatini, and hospital wards. The settlement lies between Thika road and Juja road. According to the 2009 census, Mathare’s population is estimated to be more than 124,401 people, 65% of whom are youth. Mathare is among the areas in Nairobi that experienced the worst forms of election violence, which affects business operations and led to the disruption and closure of many businesses.

The SITE and CIPE Mathare entrepreneurial ecosystem mapping gathered information about entrepreneurship domains and how they interact with each other. The mapping, conducted between April and May 2018, assessed the business environment in which the entrepreneurs operated. It also analyzed entrepreneurial gaps in the domains and opportunities for engaging with duty bearers to influence policies that affect businesses. Further, the mapping generated information on possible actions and interventions for addressing the gaps in order to promote business start-up and growth in Mathare.

The mixed-method1 mapping exercise targeted potential and active entrepreneurs in two wards in Mathare: Kiamaiko and Mlango Kubwa. To begin with, a desk review was undertaken to inform the issues to be covered in the study and data collection tools were designed, including the entrepreneurs’ questionnaire, focus group discussion (FGD) guide, and key informant interview guide. Interviews were conducted among ninety-eight existing and potential entrepreneurs, along with in- depth interviews with 13 organisations in Mathare, and five key informant interviews (KIIs). Four FGDs were also held – two in each ward – with 36 FGD participants (60% of whom were women), and one case study was developed. Direct observations were made on the nature of enterprises and how they operate. Quantitative data from entrepreneurs’ interviews were analysed using CSPro version 7.1, while qualitative data from FGDs, KIIs, and the case study were analysed using thematic analysis2. Observation data was used to supplement information from other sources.

Most entrepreneurs (68% – 67 out of 98)) were female and (32% – 33 out of 98) male. More than half (52%) were over 36 years old. Most of the entrepreneurs (83%) operate within Mathare. The service sector was dominant, accounting for 50% of entrepreneurs participating in the desk review, and included hair salons and car wash

businesses. Retail trade accounted for 43%, and included businesses that sell foodstuffs, vegetables, fruits, and other groceries. The production sector accounted for 7%, and included soap-making, tailoring, and bakeries. Forty-two organisations in Mathare that focused on entrepreneurship development, health, training, childcare support, and sports were also identified.

KEY DOMAINS AND ISSUES

Below is a summary of key findings on domains (issues) assessed in the entrepreneurship ecosystem mapping. The findings are summarised into eight domains that were the focus of the mapping exercise.

1. Entrepreneurship

Entrepreneurial spirit and risk-taking are key ingredients for business start-up, growth, and survival. Businesses start, grow, and survive if the owners are committed and willing to take risks. In Mathare, the willingness to start businesses is high, even though most businesses start small and are largely owner operated. Many (60%) have operated for over three years, however the turnover remains low with sales averaging between KSh 200 – 500 per day, affecting business growth. Nonetheless, the communities in Mathare value their businesses and perceive them as legitimate and real jobs from which they earn their livelihoods. Business start-up is largely necessity- driven, primarily to meet basic needs of food, clothing, rent, school fees, and medical costs. Therefore, making profits and business expansion is not the main drive for starting businesses; rather, starting a business is a means of survival3.

2. Policy and Regulations

Permits, licensing and business formalisation

For businesses to be recognised, they need to register with the relevant county authorities. About 41% of the respondents experienced no challenge in accessing business licenses and permits, while 19% had minor obstacles. They therefore have been able to access county government services to pay for permits or fees. About 30% of the respondents experienced moderate, major, or severe obstacles in accessing business licenses and permits. Even though most respondents had no obstacles in accessing formal systems, most businesses (95%) were unregistered and were thus prone to harassment. This is despite the fact that most entrepreneurs are willing to comply with government requirements and regulations governing business operations to minimise conflict with authorities.

Non-registration of businesses could be attributed to a lack of permanent working spaces, required to formally register a business. Another reason could be irregular

collection of fees due to authorities’ inability to access some areas or fear of attack by residents4. Consequently, most traders pay daily or weekly fees ranging from KSh 50 to 150 to do business. These payments, however, are irregular and prone to political manipulations. For instance, then-governor of Nairobi County waived daily fee payment for small-scale traders5. However, this did not guarantee them access to working spaces nor does it give their businesses recognition by authorities. The failure to provide formal and recognised working spaces creates obstacles for entrepreneurs, like the food traders, who have to comply with additional public health regulations.

Policy inclusion and decision-making

Informal businesses are often excluded in decision-making by government. Part of the challenge is lack of formal representation. Small-scale entrepreneurs in Mathare lack strong associations that can represent members in decision-making platforms. Instead, they rely on informal and varied interest groups, which are weak and not well positioned to engage in advocacy6. The temporary and precarious nature of their businesses makes it difficult for the government to engage with them. Thus, the business operators should be encouraged and supported to form strong groups and associations that can engage with the government on issues affecting them.

3. Finance

Business financing is important to support business start-up and growth. Micro financing plays a pivotal role in supporting small and micro enterprises. In Kenya, the sector is growing and is strategically visible with most institutions having agency banking and mobile banking services that give the under-banked a chance to access financial services like savings, loans, and investment advice. In spite of this, informal settlements are underserved. In Mathare, 69% of businesses had major obstacles in accessing finance with only 7% having easy access. Consequently, and as documented elsewhere7, most entrepreneurs access loans and finance from informal social groups and networks, like table banking and merry-go-rounds (chamas); 5% access financing from micro-finance institutions and 20% from private providers like banks. The financing gap is attributed to insecurity and political violence witnessed during general elections, which discourages banks from investing in the area. Several banks, including Equity Bank, Family Bank, Kenya Commercial Bank, and Faulu Kenya, have agency banking services in Mathare, which offer front office services but do not give loans or credit. Only KREP has a branch in the area. Nonetheless, “although people may be poor and may not have cash or savings, they have other assets”8. In the case of Mathare, the social capital9 created through informal groups is a strong asset that can be tapped. Alternative financing options can be explored, including strengthening table-banking options.

4. Support

Entrepreneurship support

Mathare area is highly populated and has a large youth population. There is thus a large market for low cost goods, services, and products. However, most respondents (78%), especially young people, find it difficult to start businesses due to lack of skills and start-up capital. Only 21% had ease in starting up businesses. The primary obstacles include lack of business skills, training, mentors, and apprenticeship opportunities, similar to the findings from the 2015 study by Kamau et al10.

Source of goods and markets

Most businesses (51%) have easy access to local markets. However, more than half (59%) source goods and products outside the Mathare area, mainly from the city and areas outside Nairobi. Lower prices, availability of goods, and better-quality products are the reasons for buying goods and products elsewhere. Given the small nature of most businesses in Mathare, it is possible that the entrepreneurs buy goods in small quantities and therefore make several trips. This costs them time and money whenever they travel to source goods, adding additional transportation costs. This gap portrays an existing opportunity which can be filled by establishing large-scale (wholesale) and storage businesses in Mathare.

Collaborations

Networks, collaboration, and peer support is crucial in running businesses and sharing business information. Collaboration and networking are common among businesses that require working in teams, like car wash businesses and among young entrepreneurs. However, intra-business collaborations and networks are minimal as most entrepreneurs (77%) work within their teams and not across sectors. Many small- scale entrepreneurs work individually – about 29% collaborate with their competitors and peers, 33% have some collaboration, and 39% have no collaborations. Promoting inter-and-intra business networks and collaborations is necessary to enhance business support, as well as to build networks between small and large-scale entrepreneurs. The latter can be cultivated through linkages with the Kenya National Chamber of Commerce and Industry (KNCCI). Strong entrepreneurial networks create social capital needed to protect businesses during conflicts. Such networks and linkages can promote social cohesion and co-existence and create unified platforms of entrepreneurs that are crucial for businesses stability and growth.

5. Culture

Perceptions of entrepreneurship

Cultural attitudes and social-political issues influence businesses. Most respondents perceive entrepreneurship as an important source of livelihood and have a positive attitude towards it. 92% and 91%, respectively, perceive owning businesses as real jobs and esteemed and respected occupations; for 82%, running a business is an exciting occupation. There is nonetheless a mismatch between the positive thinking and actual businesses operation, as 75% viewed starting and doing business as challenging. This view was reiterated by over 80% of FGD participants who wished their children would get good enough education to enable them to get formal jobs; they also felt that business support should be given to those who fail to succeed in education. Thus, for many, engaging in business comes as a secondary option and shapes societal perception about entrepreneurship, hence the reference to such workers as hustlers or jua kali. Such notions need to be challenged to encourage youth engagement in entrepreneurship. Innovative approaches like linking young and potential entrepreneurs with successful entrepreneurs should be promoted.

Most respondents (88%) perceive having businesses as financially rewarding. The reasons for starting businesses, however, vary. Whereas profit making, savings accumulation, and wealth creation is necessary, many respondents get into business to earn a living and meet basic needs. Hence, savings are low especially among young entrepreneurs, whereas savings accumulation is higher among older entrepreneurs (35-46 years) whose businesses have stabilised.

Socio-political dynamics

Unstable political environments lead to unstable businesses. In Mathare, this is often the case, especially during elections. Mathare is a political hotspot with several instances of violence and unrest erupting, as was the case in 2017. In such situations, businesses are destroyed, closed down, or fail to operate at full capacity. This environment is an obstacle to close to half of respondents (47%) and a minor obstacle to others (27%). Extortion and corruption are not major obstacles for most businesses (49%) expect for a few who experience it as a moderate (10%), major (7%), and severe (13%) obstacle. Given that most businesses are not registered and thus operate illegally, the owners play hide-and-seek with authorities, for instance opening in the evening. Likewise, the authorities sometimes fear attack by residents and therefore keep away from the area. This in turn leads to failure by authorities to provide basic services at the existing workspaces.

6. Infrastructure

Working spaces

Having a workspace is important to starting and sustaining businesses. This is, however, a major concern for most respondents (85%) in Mathare. Only 14% have reliable working spaces. The rest operate in open spaces along the roadside and streets, in front of verandas, and outside their homes or plots11. Some businesses operate in unhygienic environments near open drainages.

The county government has no designated working spaces for small businesses, partly because of illegal possession of public land by individuals. Additionally, available open spaces are controlled by cartels (illegal gangs) who demand a fee for allocation. There is nonetheless a positive move as the Mathare Ward county officials are working on a Draft Infrastructure Bill which, when implemented, will identify and map public spaces in Mathare where stalls will be built and allocated to small-scale businesses at affordable fees. This development is timely and requires multi-stakeholder engagement to determine the number of working spaces required, set fee guidelines, and identify alternative workspaces to accommodate those who may not get stalls.

Transport

Access to transportation is not a challenge for most businesses (64%) in Mathare and many have access to informal public transport systems. However, about 35% face moderate, major, or severe obstacles in accessing transport. These include entrepreneurs with disabilities and those whose businesses are far from the roads. Some transport their goods using handcarts (mkokoteni), back loading, or pay extra to private transporters. There is a positive development in addressing transport challenges in Mathare: the county government is widening the road infrastructure within the settlement which will provide better access by public transport.

Storage space

Storage space for goods is a challenge for most (70%) entrepreneurs in Mathare and is linked to lack of workspaces. Some (12%), especially those trading in perishable goods like fruits and vegetables, use temporary storage where they hire overnight security. A few (2%) pay for private storage space, but this consumes part of their profit. This obstacle can be addressed alongside that of workspaces, with inclusive designs developed to ensure that both work and storage spaces are built.

Water

Water access is a major challenge, and only 22% of the respondents had easy access. Some (38%) had minor obstacles while others (38%) experienced moderate, major, and severe obstacles in accessing water.

Electricity

Access to electricity is good for most entrepreneurs, as noted by 35% who faced no obstacles and 35% who faced minor obstacles. A small portion (28%) experienced moderate, major, or severe obstacles in accessing electricity. In spite of availability, electricity supply reliability should be examined. Some stakeholders raised concern that power rationing effects informal settlements like Mathare more than other areas, thus affecting businesses. Nonetheless, electricity availability presents opportunities that can be tapped to grow, strengthen, or expand businesses.

Waste management

Urban infrastructure in Mathare is unplanned with no designated garbage dumping and collection sites. This creates an obstacle for most (72%) entrepreneurs who have to clean their working areas and pay for garbage collection, sometimes up to KSh 50 daily. Failure to collect garbage leads to littering of garbage in open spaces. When it rains, the garbage is pushed into open drainages and sewer lines, causing flooding. The entrepreneurs then have difficulties accessing the working spaces, and in some cases, the public health officials close food businesses to prevent cholera outbreaks.

Sanitation

Sanitation conditions in Mathare are poor and most people have no access to proper facilities. Only 20% of the respondents had access to sanitation and 13% had minor challenges. The rest (65%) had moderate, major, or severe access challenges. This is a major concern not just for businesses but also for public health. A study in Nakuru found that most small-scale businesses spend up to 18% of earnings12 in accessing sanitation services. There is a need to promote safe, clean, and healthy business environments with adequate access to water and sanitation services.

7. Security

Security of goods is a concern for most business operators in Mathare. Other studies have made similar observations and identified security and safety as major concerns among households living in urban slums in Kenya13. In Mathare, only 29% of the respondents were satisfied with security in their area and 17% had minor concerns. The rest (53%) had moderate, major, and severe concerns about the security situation.

The lack of security affects all other aspects of business development. As noted earlier, financiers may fear to invest in such areas, thus widening the financing gaps. Businesses cannot thrive in an insecure environment and government investments may be low. As a result, the communities are excluded from mainstream development and this creates resentment as the residents express anger towards authorities. Security concerns should be addressed through multi-pronged solutions that include local actors. It is equally important to improve livelihood sources in Mathare to give people access to secure livelihoods.

8. Information and Communication

Communication and internet

Most people in Mathare have access to telephone and internet. There is generally high ownership of mobile phones in Kenya and a strong presence of several service providers like Airtel, Safaricom, and Telecom. Some respondents, however, still experience obstacles in accessing telephone and internet. 22% had moderate or major obstacles, while 2% had severe obstacles in access to telephone and internet. High ownership of telephones and access to internet services present an opportunity to enhance businesses in Mathare. For instance, ICT-based applications can be used to provide business information and improve security. The existing obstacles should be re-examined, as well as variations in access to communication between men and women to ensure the presence of effective gender responsive strategies.

Access to information

Access to information is a challenge for 56% of businesses. This can be improved to make business and market information widely available and accessed. It is, however, important to establish the information required for different categories and types of businesses in Mathare and the suitable and effective methods of giving and sharing the information. For instance, social media is appealing to young entrepreneurs, but this may not be the most suitable for older entrepreneurs.

OPPORTUNITIES AND OBSTACLES

This report has identified key opportunities and obstacles that can be addressed to improve the business environment in Mathare. The primary opportunities and obstacles are:

Opportunities 1. Strong social capital and positive attitudes towards entrepreneurship, which can be harnessed to promote business in Mathare. 2. High population in Mathare provides a ready market for goods and services. 3. ICT access offers an opportunity to expand and start businesses. 4. Access to electricity and transport can be harnessed for business growth. 5. Presence of many community and development institutions and organizations in Mathare create opportunities to build entrepreneurs’ capacity.

Obstacles 1. Insecurity and political threats. 2. Lack of working spaces. 3. Lack of financing and low financial investment in Mathare. 4. Poor collaboration and networking among business operators. 5. Inadequate transportation in some areas.

KEY CONCLUSIONS AND RECOMMENDATIONS

The following are key conclusions and recommendations for improving business start-up, growth, and sustainability in Mathare.

Conclusions 1. The positive attitude towards entrepreneurship offers an opportunity to start businesses and take advantage of the market created by the high population in Mathare. 2. The presence of organisations implementing different programmes presents an opportunity to establish partnerships for designing market-driven skills and capacity building programmes to support unemployed youth in Mathare. 3. Existing youth groups working on peace-building initiatives, security, and garbage collection in partnership with civil society organisations can be used to enhance cohesion and peaceful coexistence in the area, thus addressing political instability and potential ethnic violence. 4. Local financial systems within Mathare, including table-banking groups, are an opportunity that can be tapped to provide credit for businesses.

Recommendations 1. Local stakeholders can initiate partnerships with financial service providers to explore the possibility of designing and providing affordable financial and business support services to entrepreneurs in Mathare. 2. Local stakeholders, in collaboration with organizations in Mathare, can design programmes that offer business and vocational skills to community members and business owners. 3. Local stakeholders, together with community representatives, should engage the county authorities to advocate for provision of working spaces and construction of markets and storage facilities in Mathare. 4. Community partnerships, business collaborations, and networks should be strengthened to promote secure, safe, and healthy working places for entrepreneurs in Mathare, in liaison with the national government. 5. Peace-building initiatives should be supported to address political incitement and ethnic conflict. 6. Formation of strong business associations within Mathare should be supported to promote engagement with government and development partners.

ENDNOTES

1 Merriam, S. (2014) Qualitative Research: A Guide to Design and Implementation, Jossey- Bass, San Francisco. 2 Richards, L. (2005) Handling qualitative data, Sage, London. 3 Kamau Anne, Kamau, P., Muia, D., Baiya H. & and Ndung’u J., 2018. Bridging entrepreneurial gender gap through social protection among women small scale traders in Kenya. In Yousafzai Shumaila, Fayolle A., Lindgreen A., Henry Co., Saeed S., and Sheikh S. (Eds.), Women’s Entrepreneurship and the Myth of ‘Underperformance’. Edward Elgar Publishing.

4 Kamau et al., 2018. 5 Gitonga Wahome, 2017. Reprieve for small-scale traders as Sonko waives daily charges. Citizen Digital, October 2, 2017 11:36 (EAT). https://citizentv.co.ke/news/reprieve-for-small-scale- traders-as-sonko-waives-daily-charges-177023/ 6 Muia Daniel., Kamau A., Kamau P., Baiya H., & Ndung’u Jane., 2018. Social Capital as a Coping Mechanism for Women Small Scale Traders in the Informal Economy in Nairobi, Kenya. Journal of Social Welfare and Human Rights, Vol. 6, No. 1, pp. 13-20. 7 Kamau Anne, Kamau, P., Muia, D., Baiya H. & and Ndung’u J., 2018. Bridging entrepreneurial gender gap through social protection among women small scale traders in Kenya. In Yousafzai Shumaila, Fayolle A., Lindgreen A., Henry Co., Saeed S., and Sheikh S. (Eds.), Women’s Entrepreneurship and the Myth of ‘Underperformance’. Edward Elgar Publishing. 8 Brown Alison, 2006. Challenging Street Livelihoods. In Alison Brown (Ed), Contested Space: Street Trading, Public Space, and Livelihoods in Developing Countries. ITDG Publishing. 9 Muia et al., 2018. 10 Kamau, A., Kamau, P. & Muia, D., 2015. Women small scale traders’ baseline report. Promoting livelihoods and inclusion of vulnerable women small scale traders. Oxfam GB Policy Paper. Wezesha Jamii Project. https://kenya.oxfam.org/policy_paper/women-small-scale-traders-baseline- report. 11 Kamau et al., 2015. 12 Kamau Anne and Alfers Laura, 2017. Impact of WASH Deficits on Labour Productivity in the Informal Economy, Nakuru Report, Kenya. Unpublished Report, Women in Informal Employment Globalising and Organising (WIEGO) & International Institute for Environment and Development (IIED) Collaboration on Water and Sanitation in Informal Workplaces. 13 Salazar Bernardo Perez, 2011. Building urban safety through urban planning and management: conclusions and recommendations for future policy. In UN Habitat, Building Urban Safety Through Slum Upgrading. United Nations Human Settlements Programme (UN HABITAT), Nairobi.