Friday, 27 April 2018

How Creative destruction drove Kenya’s economic growth

How the Mobile Phone evolved
 Simply defined, creative destruction is innovation.  Innovation is introducing new and efficient technologies of production and also paradigm shifts in management thinking.  It is called creative destruction because innovation essentially causes adaptations that kill the old technologies or management styles.  Some products are consigned to the graveyard while new ones take their place.

 Kenya’s has experienced 20 years of creative destruction which has resulted in a rapid economic expansion.  The innovation was multipronged including technological advances, Paradigm shifts, Kenyans’ enterprise, and a shift in government policy focus.  The result; Kenya is the financial, ICT and transport hub of the eastern Africa region.

 Liberalization of the Kenyan economy in the 1980s and 1990s spawned a generation of aggressive entrepreneurs who brought to prominence the “Kadogo economy.” This is a paradigm shift in management thinking that embraced the low-income Kenyans as part of the market for their products.  
In a bid to break into a market that was firmly in the hands of branches of Multi-National Corporations, the Kadogos targeted the low-income groups with low priced, quality goods.  They produced the lowest quantity of their products aimed at the low-income consumer.

Even MNCS had to adopt 
Kadogo Economy
 Soon there were, in the market, low priced washing detergents and similar products and cheap but safe alcoholic drinks. Others followed suit and now we have 1.6 grams instant Coffee Sachets, 50 gram blue Band Sachets, 50-gram cooking fat packets and the like. Bottled then water was an imported novelty, available only in five- star hotels. The only natural fruit Juice we knew then, was South Africa’s CERES brand. Today local brands dominate the shelves and are available in 100 ML packages.  All are available at the local kiosks and are affordable.  
Woe to any Manufacturer or service provider who still looks at the low-income Kenyan as outside their market bracket. Fortunately, many local manufacturers and service providers have embraced this line of thinking and are smiling all the way to the bank.
This targeting of the low-income groups has enabled the local manufacturers and service providers to stand their ground against the onslaught by large Multinational corporations on the local market. In fact, local operators are even expanding where MNCs are shrinking or even abandoning the market altogether.
 This paradigm shift has catapulted Equity Bank into the largest bank in Africa in terms of accounts controlled. It is the thinking that catapulted Safaricom into the behemoth it is today.  Thanks to Kadogo Economy banking services are now available on the street corners and Keroche can compete with Kenya Breweries.

Versatility and adaptability is an innovation. Asked how they managed to grab a share of their Fast Moving Consumer Goods market in just about 10 years, the then BIDCO CEO, Vimal Shah, told this writer that the local firms made their decisions on their feet while the MNCs had to hold board meetings to decide.
The opening of the telecommunications market and the entry of the mobile telephony is the best thing that happened to this country.
SmartPhones: Powerful tools
Coupled with the entry of undersea fibre optic cables which raised internet speeds and lowered the cost of connectivity, it unleashed creativity among Kenyans, spawning new products that put Kenya on the World Map. The first off the blocks was MPESA, which enabled person to person money transfers. Soon traveling up-country to take money to relatives was so yesterday. One could transfer money relatives in a matter of seconds.
 Apart from ease of access-no application forms, no survey. Just walk into a kiosk, buy a handset and PIN card and initially, within a few hours you were connected- a proud phone owner. No frills. No bribes! And what’s more, they came in cheap.
The Mobile phone has mutated from just voice calls and SMS to internet connectivity that enables many more functions.  
 Then Banks followed; you could open a bank account from the streets, in a short while banking became a street affair as banks opened agencies in Kiosks. Those fancy banking halls were yesterday-ish. I visited my branch last a year ago to renew my visa card. Since then, I do my regular banking activities at a Kiosk in my neigbourhood or on my phone.  I guess long queues in banks at the end of the month are now history.
Equity Bank led in innovation in this sector. Apart from leading in hawking accounts on the streets, the bank, which mutated from an NBFI, in 2005 also led in setting up agencies among M-PESA agents perform withdrawals and receive cash deposits. This enabled Equity Bank to elbow Barclays and Standard Chartered out of the top perch. This was an innovation which brought many poorer sections of the population into the financial system.  Equity also led in the innovation setting up agencies along the Streets among M-Pesa agents to carry out banking services.
Do you have this at home?
 M-Pesa itself, developed by Safaricom, revolutionized money transfer and banking services.  MPESA, a first in the world, enabled Kenyans to transfer money among individuals, then save money, then it enabled person to business transactions, then Business to business.  We can also transfer money from our bank accounts to our Mobile Phones. And it is still developing.

More people can now save money on their Mobile phones which has increased the number of people with access to banking services. According to the communications authority, More than 90 percent of Kenyans are now banked, thanks to M- Pesa. The Authority reported that a total of Shs.1.659 trillion was transacted through M-PESA in the three months to September 2017. Of these Business transactions took Kshs 714 billion.

A KPT&C Phone booth. 
This is a Museum piece
 Do you remember when you last used a fixed line phone handset? It must have been decades ago in my case. How about those days of good old landline and telephone booths?  We could spend hours queuing in a telephone booth waiting for our turn to make a call.
 A telephone line on your desk in those days announced to all and sundry who was senior. Not anymore! These have been replaced by the all ubiquitous mobile telephone.  And that archaic fixed phone is no longer relevant in our lives.
Today, according to the Communications Commission of Kenya, mobile telephony has a 90 percent penetration rate while fixed lines reach only 0.16 percent of the population.

 These changes have seen Kenya’s GDP rise six-fold from US$12 billion in 1998 to US$75 billion at the end of 2017. Per capita income has risen from U$$400 in 1998 to $1,512 at the end of 2017.  This level of growth means that the Supply curve, economists say, was constantly shifting outwards, meaning that the basket of goods and services available to Kenyans was constantly growing larger as more goods were introduced.
The birth of M-Pesa has spawned the growth of financial techies that are offering small loans to customers through the Mobile phone. Kenyans now borrow small money from creditors through their mobile phones. And going by the number of lenders using this technology to lend, the banking industry is facing a major competition. Equity grew to where it is by targeting the unbankable- small savers and borrowers.
Old Thika Road:Era of 
Traffic Jams dissipating
In addition to Technological and Management paradigm shifts, is also the massive investment in business-enabling infrastructure. This also involves a paradigm shift from investing in political infrastructure to investing in production supporting infrastructure.

Infrastructure- roads, seaports, airports, and railway has assumed new importance in government thinking. Billions of shillings have been sunk into infrastructure developing improving efficiencies in product distribution and raw material imports.   There are more paved roads, more power generating capacity, larger airports, deeper seaports fast railway line. All these have helped improve the lives of Kenyans.

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