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Nairobi 2.0

By Parselelo Kantai in Nairobi
Posted on Tuesday, 8 February 2011 13:22

Africa’s first iPhone app was created in Nairobi, inspiring hopes of a technological future. Will Kenya be a new Silicon Valley or another Bangalore?

The iHub is Nairobi’s latest innovation: a ­cavernous room taking up half a floor of a building on Ngong Road, it resembles a cross between a coffee bar and an airport lounge. People sit in groups of two or three or, more often than not, alone, coffee mugs beside them, peering at their laptop screens and typing away as music plays in the background and a coffee machine spits and whirrs.

This is being hailed as the future of Kenya’s information and communications technology (ICT) industry. Opened in early March 2010, the iHub is an open forum for a growing community of developers, programmers, bloggers and what are now being referred to as ‘mobile people’ – developers who build applications for mobile phones. The first of its kind in the country and the region, it offers free high-speed internet, a chance for the budding developer to meet like-minded people, as well as to connect with executives from mobile phone companies, more established developers and investors looking to sink funds into a good idea.

The nation is at a crossroads. It can either take the road towards Bangalore-lite and warehouse thousands of graduates in call centres or it can aim for Silicon Valley-style progress and bring private initiative together with academic support and pugnacious venture capitalists.

The brainchild of Erik Hersman, the iHub is an offshoot of Ushahidi, an initiative that was born in the 2008 post-election violence. As the country was engulfed in conflict, a small group of people sent out a call for people – citizen journalists – to report on what was happening to a website, www.ushahidi.com. The reports came thick and fast, via e-mail and text messages. The group, including Ory Okolloh, Julianna Rotich, Hersman and US-based David Kobia, were then able to map out hotspots, delivering some of the earliest reporting of the Kenyan violence. Ushahidi has since been used by aid agencies, international media and the relatives of missing people in virtually every outbreak of mass conflict and large-scale disaster, from the South African anti-immigrant riots in May 2008 to the Haitian earthquake in January 2010.

Nokia winner

Nokia Winner The international reputation of Ushahidi, as well as the commercial success of software innovations such as M-PESA, a mobile banking platform, have drawn attention to the country’s potential. In September, Virtual City, a Nairobi-based software-development firm, took first place in Nokia’s Growth Economy Venture Challenge competition. Virtual City beat eight other finalists, including firms from India, China and Canada, countries with far more sophisticated ICT sectors. Virtual City’s victory, worth $1m for a mobile tracking application for the fast-moving consumer goods sector, fed into the zeitgeist, deepening a growing belief that Kenya could be the next big destination in the fast-changing world of software development and innovation.

“People are now at a different level,” enthuses Limo Taboi, who gave up eight years of banking to join the team at Ushahidi. “You have kids coming out of university or even bypassing university because they can’t wait to get involved in applications. And there’s a huge demand for these applications. All the research which is coming out is saying that if you want to be relevant in the future, build or structure your application around the mobile phone – strip it down so that it works on even the cheapest mobile phone.”

Whether the right conditions for an ICT revolution exist is another question. Kenya is not ranked among the Economist Intelligent Unit’s top 70 digital economies. South Africa ranks first in the continent at 40, followed by Egypt, which is 57th, Nigeria at 61st and, lastly, Algeria at 67th. Only 10% of Kenyans are online.

This will change. East Africa was one of the last regions without a fibre-optic backbone until four undersea cables arrived last year. Now, the race to roll out fibre countrywide has begun.

As a result, connectivity costs have dropped dramatically. “We used to buy a megabit for $3,000. Today you’re looking at slightly over $400,” says John Kamau, chief engineer at Jamii Telecom Ltd. “We have done fibre in Mombasa and several parts of Nairobi – Umoja, Athi River, Karen and the CBD [central business district]. We also have fibre in Kisumu, Thika, Nakuru, Eldoret, and we are also moving to smaller towns like Kericho and Kisii.” While users have felt the effects rather more slowly, it is only a question of time before cheap internet connectivity is readily available.

Bitange Ndemo, the permanent secretary in the ministry of information, is widely regarded as the ICT sector’s driving force. He recognises that part of the reason consumer prices have not fallen in tandem has much to do with the government’s laissez-faire approach to pricing.

Prices are not the only story. The hype around becoming the next Bangalore has existed for at least four years. Soon after the establishment of the ICT Board, the government began aggressively pushing Kenya as a destination for business-process outsourcing (BPO). All the ingredients are there – a large, reasonably well-educated workforce that speaks English, as well as a service culture nurtured by a highly developed financial services sector. Firms such as Kencall, the country’s largest call-centre operator, set up shop and waited for the big US companies as well as the domestic demand from mobile operators such as Safaricom.

Foreign interest

Neither of these came. There was some interest from US and European corporations, but it amounted to little. The struggling sector was then dealt a blow when Safaricom set up an in-house call centre, effectively denying the young companies what would have been a steady stream of income.

Looking back on three or four years of travelling the world to market the country as a favourable ICT destination, Paul Kukubo, chief executive of the ICT Board and an early internet entrepreneur, is cautiously optimistic. “We are beginning to see interest from foreign investors,” he says. “But outsourcing is about servicing foreign markets, and what is needed is for the big foreign outsourcing firms to relocate here. It’s a very sophisticated area, and it’s not always about local firms doing things for foreign companies. People like Tata Consulting, IBM, Accenture are all looking at the market and asking whether we have what it takes. They have been quite positive, but it’s a very difficult place to crack.”

Still, the government continues to regard BPO as at least part of a package for take-off. A giant business park outside Nairobi, Konza Technology City, is the government’s next big project. Once completed, it should employ 80,000 people, who will work mostly in outsourcing. A series of intermediate business parks are planned, with Sameer Business Park, along the Nairobi-Mombasa road, being the first. “I need five Sameer Parks before we can go to Konza,” says Ndemo. “What we want to do at Sameer is to build capacity, create an incubation centre.”

However, policy direction is shifting from outsourcing to software development. “Business process outsourcing was what we were seeing,” says Ndemo. “Then software development came from nowhere.” Buoyed by their achievements, Ndemo now regards software developers as the drivers of future progress. “If we can mop up 1 million of our youth and contribute a significant portion of GDP, the service economy should surpass agriculture in the next five years. We intend to be the first African country to do this.”

Others understand the idea of take-off in broader, more regional terms. Richard Bell is the chief executive of East African Capital Partners, a venture-capital outfit with deep pockets. EACP recently invested $100m in the internet-service provider Wananchi. Seizing the opportunity to pick up assets from a failed cable TV venture, Wananchi is betting that cable provision and digital TV will do for the next decade what mobile phones did for the last.

Wananchi’s vision rests, however, on regional numbers. “The region is the right region. The policies are there, and there is sustained economic growth,” Bell says of East Africa, with its combined population of 120 million people. “The population is important for resource constraints. If you want to become a global ICT hub you need to be in the export as well as the import of ICT. You’ve got two parts of it – domestic ICT consumption, where your market has to be big enough to make it worthwhile, otherwise you’re not going to get the critical mass of suppliers, expertise, education and so on. If you take East Africa and Ethiopia together, you have the critical mass in the domestic market.”

Software developers may be enjoying attention from the moneymen. But until there is local demand for these products, insiders believe progress will be slow. “Kenya is going to be the next Bangalore but it will take some time. Until we start buying our own products, this is all a myth,” says George Ikua, who runs a Nairobi-based technology firm. “It has to get to a situation where you say 50% of our products have to be sourced locally. And that signal can only come from government.”

Ready for take-off?

Without government intervention, there is still a lot of space for the private sector. Three years ago, Rosemary Amondi set up Tracesoft, an ICT company that had created a platform for agribusinesses to standardise and trace their exports, primarily to the EU. Established when the EU was introducing new standards for commodity exports from East Africa, Tracesoft sold management information systems to a range of agricultural exporters. It then realised that if they were to work, similar systems would have to be introduced to entire sectors. “We kept on discovering that each player had specific needs,” she says. “So we developed applications for them at every level.” ?

Recognising how vital mobile phone technologies were, especially to producers – farmers and fishermen, for instance – the company is now creating systems “down the value chain”, attracting interest from ministries, export-commodity regulators and producers. Starting out with minimal seed money, the company expects to register a 2010 turnover of about $1m.

It is this entrepreneurial spirit, rather than anything else, that will drive the sector to new heights. “Is the region ready for take-off?” asks Richard Bell. “It is already happening. There’s nothing that’s going to stop it. It’s really just a question of when. And that, I believe, is up to us.”

This article was first published in the December 2010-January 2011 edition of The Africa Report

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