Can Uganda’s tech scene compete with Kenya?

Although Uganda does not have a tech scene that regularly makes headlines in Africa, its ecosystem has made steady gains over the past few years. There has been solid growth in the small but flourishing sector with most of the activity taking place in the largest and most well-funded segments: health, mobility, agritech and fintech.

One of the best known players in the ecosystem is SafeBoda, a Kampala-based motorbike taxi startup that is well known outside Uganda as an early pioneer in the ride hailing space. The startup expanded its services outside Uganda to Nigeria and Kenya – a feat not many home-grown startups have managed to achieve – giving it exposure on the pan-African stage.

Indeed, most Ugandan startups are still in the early growth stages and have not yet scaled business models beyond their own borders. Funding rounds remain small in comparison to Africa’s “big four” tech countries – Kenya, Nigeria, South Africa and Egypt.

Tugende, an asset-finance startup, is Uganda’s most well-funded startup. It has raised about $34m since it was founded in 2013 – closing a $9.9m Series A last March. Asaak finance, another asset finance company, has raised around $31.5m since it was founded in 2016.

But aside from these two companies, ticket sizes have remained small for most Ugandan startups. According to a report by WeeTracker, between 2015 and 2020 there were 33 deals that raised less than $1m, 12 that were between $1m and $5m and only three that were above $10m.

Funding elsewhere

One of the main problems for startups, founders report, is that most investors focus on neighbouring Kenya if they are looking to invest in the region.

“Uganda has always been seen as a sideshow to Kenya,” says Davis Musinguzi, co-founder and CEO of Rocket Health, a telemedicine startup. “When investors have either exhausted Kenya deals or they are looking at greenfield deals, that’s when they look at expanding to Uganda.”

There were 343 startup funding rounds between 2015 and 2020, raising around $85m, according to the report from WeeTracker. This figure pales in comparison to Kenya which raised $375m last year, according to Connecting Africa. Nigerian startups raised $1.37bn, South Africa attracted $838m and Egypt took home $588m.

But Musinguzi says that the relative lack of investor interest has led to a situation where Uganda’s startups have focused on building watertight business models rather than raising money.

“When I look at our ecosystem, what I see is substance: it hasn’t been infiltrated by hype. Because here the price is so much higher for your business, to raise money, to be able to generate traction – you have to bootstrap a lot of things,” he says.

Developing local talent

This has often led to startups focusing on building a suite of products within the local ecosystem before expanding abroad, which differs from other growth strategies that aim to replicate core business models across many different countries.

SafeBoda is a good example of a company that has refocused its sights on the domestic market. The startup exited the Kenyan marketplace in 2020 after five years of operations.

Co-founder Ricky Rapa Thomson told African Business that the retrenchment was due to Covid-19 and heavy competition from other ride-hailing apps in the local market.

“What we have been working on now is building a ‘super app’ that embeds financial services on top of the ride hailing platform,” he says at SafeBoda’s HQ in Kampala. “It will take SafeBoda into the next phase of growth”.

The “boda boda” scene is also less vibrant in Nairobi where most people using apps tend to order cars instead of motorbikes. Motorbikes are not allowed in some parts of the Kenyan capital, which also pushes consumers to opt for cars.

SafeBoda’s app was launched in March and it offers customers the chance to send money, pay bills, order shopping and buy data. The company’s founders hope that it can lure SafeBoda clients to its digital wallet via the ride-hailing service, allowing the company to charge for multiple services rather than simply paying for a ride.

While there are currently only a few thousand users on the platform, Rapa hopes that it will grow rapidly to compete with other mobile money companies and banks which offer similar services. He also says that SafeBoda will eventually re-enter the Kenyan marketplace to offer its core services.

Moving out

Created in 2012 by five co-founders who wanted to solve inefficiencies in Uganda’s local health sector, Rocket Health is also looking to take on Kenya’s relatively similar marketplace – raising $5m in March to add more services to the current platform and expand to other markets.

CEO Musinguzi believes that the startup is now ready to spread it wings.

“We are definitely looking pan-African, we want to be the world-class telemedicine provider on the continent,” he says.

“It’s very rare that you tend to see healthcare providers scaling across the continent. Yet the opportunity is huge. Africa has 25% of the world’s healthcare burden. The disease profile and how it is changing across Africa is the same. What is different is how people choose to pay for their healthcare. So your marketing strategies may change but in terms of the product it will be the same”.

Rocket Health’s latest round was led by Creadev, an evergreen investment fund backed by the Mulliez family of French entrepreneurs. Early-stage African investors Grenfell Holdings and LoftyInc Capital Management also participated in the round.

The CEO expects the firm to grow by a factor of eight after its entry into the Kenyan marketplace. A key strategy for getting new customers onboard will be partnering with the same health insurers that Rocket Health already partners with in Uganda.

But Kenya’s marketplace is far more competitive than Uganda’s where Rocket Health is one of the only telemedicine companies. It has a range of companies offering similar services and even public hospitals that are experimenting with remote consultations and drug deliveries.

This presents a problem for many Ugandan startups that will have to face larger and better-funded companies when they decide to scale in the rest of Africa.

Healthy ecosystem

Uganda’s underlying ecosystem is still going strong. The East African country is home to several accelerators and incubators that help startups take their ideas beyond minimum viable products (MVPs).

Nicholas Spencer, marketplace lead at Motiv, a co-working space, e-commerce company and accelerator in Kampala, tells African Business that there is a lot of potential for innovators and entrepreneurs in Uganda.

“We are creating an online marketplace for entrepreneurs to sell their goods digitally and we are also investing small amounts of capital in promising startups,” he says. “We have seen more investor interest in Uganda over the years as the ecosystem starts to mature.”

Increased investor interest was made clear in December when SafeBoda was the first startup on the continent to receive investment from Google’s Africa Investment Fund.

In January, Numida, a fintech offering microloans to SMEs, became the first Ugandan startup to attract funding from California accelerator Y Combinator. It joined 14 other African startups in Y Combinator’s winter batch, putting it on the radar of Silicon Valley investors.

The fact that two large US tech companies have taken notice of Ugandan startups is testament to the sector’s growing reputation.

National strategy

The government’s “Digital Uganda Vision” aims to achieve “universal inclusion, sustainable development, economic progress and poverty eradication through digital innovation combining initiatives across multiple sectors”. 

Speaking at a recent conference in Kampala, ICT minister Chris Baryomunsi said the government wants to expedite its digital economy by building smart homes, smart offices, cloud solutions, and safe and smart cities.

He added that ICT is the fastest growing sector in Uganda and it will be a key driving force to push the country into middle-income status by 2040. “We need to look to the future of digital and start implementing the necessary digital infrastructure so that we are not left behind,” he said.

However, despite plans to improve the tech sector the government also spooked investors and digital enthusiasts last year by slapping a 12% levy on the price of internet data. This was after the government tried to tax social media use in 2018, a policy that was eventually reversed.

Although many governments in Africa must look for innovative ways to expand the tax base, experts say that levies on digital services may end up dissuading foreign direct investment (FDI) and startups from setting up businesses in the country. The data levy was met by outcry in Uganda but has yet to be reversed.  

Many Ugandans have complained about implementation of the tax during Covid-19, when online services, such as e-learning, have sustained the economy.