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Ever Wondered Why Kenya Has World-class Runners Yet Investors Have Been Hesitant to Back Locally-made Running Shoes

Kenyan sprinters are known worldwide for winning gold awards and breaking world records. In any case, the nation’s first execution athletic shoe organization, Enda, ran into products obstacles when attempting to persuade financial specialists at home and abroad Kenya could turn into a huge assembling center point.

Kenyan Navalayo Osembo and British-American Weldon Kennedy helped to establish Enda in 2016 with the goal of making a top notch item for send out and to carry the world’s regard for Kenya as a home of extraordinary sprinters, however of great assembling too.

But it’sbeen a long struggle. The Nairobi-based startup had to demonstrate proof of concept and a potential export market before any investors would bet on the company. Enda began its journey hoping to raise around $500,000 to build a world class team, develop and test its running shoe prototypes and order high-quality material. The founders reached out to around 150 investors and venture capital firms, and quickly ran into fundraising troubles common to Kenyan startups.

Many of the international investors Enda contacted had never visited Kenya or Africa and had largely skewed perceptions of what investing in the continent entailed, says Osembo. They were hesitant to put money into Kenya’s budding apparel manufacturing sector, questioning why Enda did not rely instead on Chinese or Vietnamese companies who had existing infrastructure and tried-and-tested manufacturing mechanisms.

“Everybody makes it in Asia for a reason,” says Osembo. “The belief is that they’ve perfected the whole economies of scale system. So why take it to an African country?”

The Kenyan investors Enda approached appeared reluctant to invest in a shoe company, rather than putting their money into real estate or the much-hyped technology startups that earned Nairobi  its “Silicon Savannah” moniker.

COURTESY: ENDA
Enda Iten running shoe in production

“When you look at the tech landscape [in Kenya], there’s a lot of resources around from a capital perspective. Ecosystem, accelerators and all of that,” says Marvin Kiragu, managing partner at Mizizi Capital, a Nairobi investment firm. “But there’s none of those kinds of tools and support and resources for consumer startups.”

Enda raised just enough to create its first prototype from a friends and family angel investment round then decided to pivot to a more creative solution: Enter Kickstarter.

In 2016, Enda raised $140,000 from its first Kickstarter campaign. Most of the money went towards making the metal molds that create the midsole of the shoe. One mold cost $3,000 to make, and a unique mold is required for every half shoe size for both men and women. The campaign resulted in Enda’s first popular shoe model, the Iten, which launched in 2017. Enda sold out around 6,000 pairs and faced supply chain challenges in restocking the shoe.

“If I’m shipping my stuff to the U.S., [it gets there] in a day. If I’m shipping stuff to Kenya, it’s taken me…eight weeks before,” says Osembo. “It pushes production further, so the customer is getting the stuff four to five months down the line.”

In March 2019, Enda launched another Kickstarter campaign to create a second shoe. This round produced the Lapatet model, which became the first African company to defeat more than 400 other entrants to win Body & Mind category at the ISPO tradeshow, the largest sports start-up competition in the world held in Munich, Germany. This success raised Enda’s profile and its ability to finally raise its first seed funding.

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Enda raised around $350,000 in a seed funding round from five investors in November. Kenyan-based companies Mizizi Capital and Umoja Rubber Products, one of Africa’s largest footwear manufacturers, led the round, which also included three high-net-worth African individuals. The funding will support Enda’s production, distribution and marketing.

“What we look for, and what we invest in, is young African brands that have demonstrated traction, not just locally but internationally,” says Kiragu of Mizizi Capital. “When we look at Enda, we see the potential to build something that could be the Nike for Africa.”

Enda and its investors hope the round—led by Kenyan investors who put up capital to support a Kenyan brand with a Kenyan co-founder—will inspire other struggling local manufacturing startups. Kenya’s president, Uhuru Kenyatta, has prioritized manufacturing as a pillar of his and set ambitious targets to grow manufacturing from 9.8%, where it currently stands, to 15% of GDP by 2022.

Kenya’s manufacturing sector employs around 303,000 people and accounted for 11.4% of formal employment in 2017. Despite this, Ethiopia and other regional neighbors are outpacing Kenya’s growth due to high barriers to entry and the challenges of doing business in Kenya.

COURTESY – ENDA
The Lapatet in action

A lack of depth of the local supply chain has meant Enda shoes are currently 40% made in Kenya, with the rest made in China. Enda’s goal is to bring this up to 100% made in Kenya, which the co-founders believe will bring investment, jobs and industry to the country and help Kenya gain a reputation as a world-class apparel manufacturing nation.

This may already be happening. Kenya has been noted as an alternative to shoe manufacturing in China, along with other heavy hitters like Vietnam, Bangladesh and Indonesia. But some factors need to change for Kenya to really take off.

Incentives

Enda’s founders believe the way Kenya’s tax incentives are designed to develop growth in manufacturing actually disincentivize existing local manufacturers. Kenya’s Export Processing Zone (EPZ) Act of 1990 created designated export processing zones across the country where new manufacturers could open factories to promote export oriented investments.

Because Enda’s factory does not lie within an EPZ zone, it does not benefit from perpetual exemption from VAT and customs import duty that EPZ manufacturers enjoy. EPZ companies are also restricted to selling only 20% of their total production locally, a restriction Enda refuses to abide by.

“We wanted to take existing Kenyan factories and get them to the point where they’re exporting world class goods,” says Kennedy. “But the tax incentives are entirely for new foreign direct investments to set up new factories… Why not reward Kenyan factories that are leveling up that are working to drive exports?”

In recent months, Kenya’s EPZ’s have come under fire for the liberal tax breaks they provide to companies.

“There’s been increasing talk about reducing the amount of tax breaks that have been granted because the EPZ policy has granted a lot of tax breaks to a lot of companies, but it hasn’t necessarily paid back in terms of increasing job stimulation,” says Judd Murigi, head of research at ICEA LION Asset Management.

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Written by How Africa

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