In Search of the Next African Tech Hub


In Search of the Next African Tech Hub

South Africa

By Kevin Amirehsani for Global Risk Insights

For as long as Silicon Valley has existed, attempts to emulate it have sprung up, from Santiago to Tel Aviv. Technology hubs and innovation clusters often give rise to increased employment, income, and tax revenues. Their creation is increasingly becoming a policy goal in and of itself.

African countries are no exception. Economies looking to diversify from natural resource exports and take advantage of the continent’s mobile revolution are, for better or worse, looking to technology hubs as the solution.

But what conditions are necessary to create a tech hub? And do public sector efforts to facilitate them actually work?

At a minimum, conducive geography, nearby educational and research institutions, access to venture capital, and some degree of tax and regulatory incentives seem to be required. Equally important may be formal and informal activities that enable local entrepreneurs to feed off each other’s skills and ideas.

Given the fact that most developed countries have failed to emulate Silicon Valley’s success, coupled with the massive infrastructure and capacity deficits present in many frontier and even emerging economies, this does not bode well for Africa’s chances.

Yet that has not stopped governments from trying.

Kenya has already broken ground on the continent’s most ambitious tech hub-building effort – an entirely-new $10-15 billion city just 40 miles south of the capital which is already attracting attention from tech giants such as Microsoft and Apple.

Nairobi itself may have by now earned its moniker of “Silicon Savannah.” It is already widely-known as the home of M-Pesa and a slew of startups utilizing mobile payments, can boast of relatively fast internet, IBM chose it in 2012 as the host of its first African research lab, and the city’s iHub incubator has drawn praise from Google’s Eric Schmidt.

A less supportive policy environment exists two thousand miles west, in Nigeria, but that may be made up for with massive market size, low mobile penetration, and, arguably, a more entrepreneurial-minded culture.

A cellphone repair shop built from a shipping container in South Africa. via Wikimedia

A cellphone repair shop built from a shipping container in South Africa. via Wikimedia

Indeed, in spite of slow internet speeds and notoriously frequent power outages (NEPA, the previous name of the country’s utility monopoly, is sardonically dubbed “Never Expect Power Always” by Nigerians), a lively startup scene has developed in Lagos.

Virtual Streets offers users real-time data to help avoid the city’s massive traffic jams, iROKO has modernized the Nigerian film industry, and Jobberman has rapidly become West Africa’s largest online job site, among a horde of others.

These two examples, however, have been largely software-focused. For all the home-grown Ushahidis and Kongas that East and West Africa have produced, there have been very few home-grown hardware successes.

Manufacturing the “silicon” in Silicon Valley is necessarily much more difficult. Initial investments and red tape (reinforced by often predatory tariffs) result in larger barriers to entry for firms, which unfortunately mean that the higher gains in employment and agglomeration that come with value-added production have not been realized.

But this has not stopped some firms from giving it a shot, particularly in Cape Town, located in the continent’s most industrialized economy. PVision, which manufactures locally, has already made inroads into the LED and LCD market in South Africa and beyond. Furthermore, Pretoria has reeled in a host of greenfield investments in clean energy throughout the Western Cape as a result of its ambitious renewable energy and local content policies.

The trend has even extended to the mobile arena, with both local and foreign players recently beginning phone manufacturing in Cape Town. CZ Electronics is set to launch one of the first smartphones both designed and built in Africa. And Hisense, not a newcomer but rather a Chinese electronics multinational, is about to begin assembling its new range of dual-SIM smartphones in Cape Town, to complement the TVs and refrigerators it already produces in-country.

“Localizing production to support strategic markets [is] critical to grow market share,” said Ebrahim Khan, former Deputy General Manager of Hisense South Africa. “Major MNCs have invested in the [Western Cape] tech industry. Many of these MNCs are now feeding off the startups, and vice versa.”

It is clear that insofar as building a tech hub is possible, there is no one formula. African leaders must learn from numerous failed attempts at building technology clusters across the world. If the goal is more than simply creating white elephants, some degree of specialization and building off existing strengths must occur.

Cute apps” may win startup competitions, as well as build local programming and engineering talent, but in order to foster sustainable tech employment, injections of investment-ready capital, and durable linkages with other sectors, the continent needs to chart its own, locally appropriate path.

Partnering with organizations that have expertise in bringing health innovations to market in frontier economies, focusing on agricultural ventures (agriculture employs 65% of Africa’s labor force), and serving underserved populations – especially female entrepreneurs, are all potential ways forward.

Africa has tremendous potential to become a global leader in both attracting and nurturing tech companies. To do so, however, dreams of building a new Silicon Valley should be retooled into “started in Africa” action plans.

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