Africa is one of the few areas of the world whose economy is growing at a healthy pace; some 6% a year. McKinsey, the consultant, reports that African consumer spending has risen from US$860bn in 2008 to almost $1 trillion now. Africa is also the world’s fastest growing technology market, with mobile penetration reaching reached 649 million connections. The continent has become a key testbed for new on-the-go services for smartphones and tablet computers. For each of the past five years, the number of subscribers across Africa has grown by almost 20% and is expected to reach 738 million by the end of 2012. Kenya has secured a significant share of this boom.
In 2002, Kenya’s exports of technology-related services stood at an unremarkable $16m. By 2010, that had exploded to $360m. To its promoters, Nairobi is already known as Africa’s answer to Silicon Valley. “The world does not revolve around Santa Clara any more. We want to get big into Africa,” said Mike Bell, Intel’s chief global engineer.
New tech firms are springing up at such a rate that the Kenyan capital is running out of office space. Nokia, Vodafone and the American chip giant Intel have chosen Kenya as the place to run their African operations. Next year work will start on Konza, a £5 billion 2000 hectare technology city 60km from Nairobi that will house 200,000 people and become the new African headquarters for Google, Microsoft and Facebook.
Kenya is still a poor country; few of its people own laptops. However, there are 74 mobile phones for every 100 Kenyans; well above the African average of 65. The result is that Africans are leapfrogging “old” technology and going straight to mobile internet services, which is exactly what large tech firms are looking for.
Three factors helped Nairobi to become an African tech hub. Firstly, the government forced through the privatisation of the telecoms firms, which drove down connectivity costs and a decade ago the government struck a deal with the United Arab Emirates to run a sub-sea fibre optic cable from the Gulf to the Indian Ocean port city of Mombasa. Prices plummeted and bandwidth exploded. Just under 12m of the country’s roughly 40m people now use the internet, a number that has trebled since 2009. New 4G services will be introduced nationwide later this year, before many European countries.
Secondly, Kenya has undergone a revolution since 2007, when M-PESA, a mobile-payments system operated by Safaricom, a phone company, was launched In May, Google launched Beba, a pre-paid card for commuters using Nairobi’s local buses. Insiders say that this is a test run for a much larger cashless-payment system. Vodafone and Google now want to use the lessons learnt in Africa to develop new mobile money services in other emerging markets. Google also recently bought a stake in a Nairobi ecommerce start-up called Mobile Planet, which is experimenting with new forms of ecommerce.
Thirdly, since 2010 Nairobi has had a place, called the iHub, for local techies to get together and exchange ideas. The iHub has expanded to include a consulting arm, a research department and an incubation space called m:lab, which supports start-ups developing mobile applications.
Investors are not the only people putting money into Nairobi’s start-ups. The city is brimming with aid agencies, development funds and foreign NGOs eager to invest. The Kenyan Government, in coordination with the World Bank, has embarked on a multi-million dollar initiative to use information and communications technology to accelerate economic growth and promote transparency.
Having prepared the technical groundwork, ministers have now left entrepreneurs to get on with the job. There are no punitive taxes and no censorship of the internet and firms can hire whoever they want, with no restrictions on how they use consumer data.
1. Define the following terms:
- Incubator investment
2. Explain the advantages and disadvantages of privatisation.
3. Analyse the significance of globalization and e-commerce on the decision of foreign firms to locate in Kenya.
4. Evaluate the likely impact of multinational companies, like Google and Microsoft, on Kenyan society, its business environment and its economy.