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Government Funding Is Just One Avenue for African Tech Sector

As African countries pour billions into developing technology cities, other players are developing local hubs.

Hoping to reap the economic benefits of a digital revolution, several African countries are seeking to build their own versions of Silicon Valley. Is this a task better left to governments or to private industry?

Some nations believe they can grow their technology sectors by investing billions of dollars to erect cities complete with universities, laboratories and offices for start-ups and tech freelancers. Kenya’s planned 5,000-acre Konza Techno City near Nairobi is projected to accommodate 200,000 people, create 100,000 jobs and generate $1 billion in economic activity each year when it’s completed in 2030. The tech hub is intended to focus on education, life sciences, telecommunications, and business process outsourcing and IT-enabled services.

Other local players are setting up incubators and giving tech entrepreneurs work spaces where they can collaborate with one another and connect with investors. In both cases the goal is to curb national reliance on commodities and foreign aid by developing high-skill domestic industries.

“The emergence of technology is related to the ability for technology to solve some of Africa’s biggest problems,” says Daniel Guasco, Cape Town–based co-CEO of Groupon South Africa and chair of the Silicon Cape Initiative, a nonprofit supporting technology-enabled ventures in South Africa.

Africa is the world’s youngest continent, proportionally, with 60 percent of the population aged 15 to 25, according to African Economic Outlook. Roughly 20 percent of those people are unemployed, versus 13 percent in the same age range globally, the Paris-based data and analysis provider reports. As a result, many young Africans turn to information and communications technology entrepreneurship out of necessity. Sub-Saharan Africa has more early-stage entrepreneurs per capita than any other region worldwide, according to London-based Global Entrepreneurship Monitor’s 2014 annual report.

The spread of mobile phones — Africans own about 750 million of them — is perhaps the most important technology driver, says Tim Kelly, lead information and communications technology policy specialist at the World Bank Group in Washington. Local companies are creating mobile applications that tackle a wide range of problems. For example, medical directory app Find-A-Med, developed in Nigeria, helps users locate the nearest medical center; Kenya’s M-Pesa, run by domestic mobile operator Safaricom and Britain’s Vodafone Group, lets people without bank accounts transfer money to each other.

Falling prices for broadband Internet, spurred by the recent arrival of undersea cables, have also helped, as has the upgrading of mobile networks to 3G and 4G, Kelly notes. In developing countries a 10 percent rise in mobile penetration can lead to 1.2 percent growth in gross domestic product, the U.S. Agency for International Development estimates.

Not everyone is optimistic. Some skeptical Kenyans think Konza Techno City’s estimated $14.5 billion bill would be better used to encourage local investment in start-ups and to fund stronger training programs. Others fear that luxury tech cities will exclude low-income locals.

African tech hubs will show a high failure rate as they struggle to find the right business model, Kelly reckons. Two years after it was announced, Ghana’s $10 billion Hope City is still stuck on the drawing board, a victim of the country’s economic downturn, among other obstacles. The first phase of the metropolis, whose plans call for a tech park with room for some 50,000 workers, had been scheduled for completion by 2016.

“I’m not sure a centralized, top-down approach to creating these spaces is as effective as the organic way that places like Silicon Valley evolved,” says Aubrey Hruby, Washington-based senior fellow with the Africa Center at think tank the Atlantic Council and co-author of the recent book The Next Africa: An Emerging Continent Becomes a Global Powerhouse. Hruby points to the self-described Silicon Savannah in Nairobi as having the features of a bottom-up success. The Kenyan capital has attracted the regional headquarters of multinationals such as Google, International Business Machines Corp. and Nokia Corp.; it’s also home to iHub, a locally financed co-working space used by roughly 17,000 entrepreneurs, investors and technologists.

“The capital — financial and human — to enable technological development will be intensive, and significant support will be required to keep these operations running,” says Anne Aliker, Nairobi-based head of investment banking for Africa at Standard Bank. Along with backing from governments and development finance institutions, private investment will help make Africa’s tech centers sustainable, Aliker adds. “There is huge investor appetite from abroad in the form of FDI from global tech companies like IBM and Oracle, and seed capital from global funds and individual investors.”

Wherever the money comes from, it’s still early days. “It is the breadth of the digital revolution in Africa, rather than its depth, that is more significant for the moment,” the World Bank’s Kelly contends. Silicon Cape’s Guasco shares that view: “The more success that we see happening in different areas, the more investment we’ll see, and so the more entrepreneurs will succeed and grow companies,” he says.

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