Financing Kenya’s Creative Economy

Creative economy

This article first appeared on Medium, @melissambugua

Kenya has demonstrated high potential for a thriving creative economy. The creative economy is broad and includes fields such as tech, music, arts, media, fashion and publishing (Kenya needs to agree on its own scope of what constitutes the creative economy). This potential stems from a combination of factors: a culture of entrepreneurship, a healthy pool of talent (in spite of or because of our education system?), geo-political positioning as a regional hub and the blessing of not having enough mineral resource to ignore other aspects of our economy.

In the last ten years, a lot of new businesses based on intellectual property have sprung up, many of which operate at small scale. However the fact that they remain operational shows that they are serving a sustained market need. This market is also growing, judging from internet and mobile penetration statistics alone.

Assuming that a sizeable (growing) market is sustained and there is sufficient talent to drive growth, the other factors needed for Kenya’s creative economy to thrive are intellectual property regulation and allocation of capital.

…IP law and regulation in Kenya does not meet the needs of the economy. There is need to protect ideas and value them appropriately…

Intellectual Property Management

The economy of ideas is based largely on assets which carry value that is intangible. Such an economy requires legal and financial structures that govern how these assets are managed. Currently IP law and regulation in Kenya does not yet meet the needs of the economy. There is need to protect ideas and value them appropriately.

Financing/ Capital

Debt from banks is difficult to access because banks don’t seem to understand or value IP based business.

No matter how well an idea meets a business need or how skilled the entrepreneurs are, without capital, there will not be a bustling creative economy to speak of. It’s potential will be nipped in the bud because entrepreneurs will either give up and move on to other economic activities that will allow them to put bread on the table, or they will continue to run their businesses at small scale, never breaking out and achieving their full potential.

From what has been demonstrated in the tech startup space (tech startups have arguably been at the forefront of the creative economy in recent years) there is significant private capital from foreign markets looking for opportunities locally. Most entrepreneurs also access the trusted debt from family and friends, who will usually be the only people willing to put money in their loved one’s crazy ideas. Debt from banks is difficult to access because banks don’t seem to understand or value IP based business.

Generally, a creative entrepreneur is unlikely to be able to secure a bank loan. There is also the hurdle of high interest rates and repayment requirements that are not compatible with high risk startups. What is missing is an accessible pool of private equity capital from domestic sources (for example pension funds, insurance companies and high net worth individuals). Admittedly, innovation within the finance space needs to happen that would direct more of this type of capital towards the economy of ideas.

How to Attract Capital

That said, the fact remains that in order to attract investment, the creative entrepreneur needs to demonstrate that their idea meets a real market need that has high potential for growth. They must have a solid business model. They should also be passionate and open to governing their business in a responsible way (putting in place structures that ensure accountability and objectivity as much as possible).

The road to Realizing This Dream

How do we get there? People from finance and the creative space need to mingle. This is the only way ideas and knowledge will be shared. Trust will also be built based on mutual understanding of each others worlds. When finance people understand the opportunity in creative businesses and creative entrepreneurs understand investment principles, then the environment will become more fertile for growth of a creative economy.