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Growing investment, innovation drives Kenya's tech status

Michael Macharia, CEO and founder, Seven Seas Technology Group

Growing local and foreign investment in tech companies along with the rise of co-working spaces and the presence of global IT giants is allowing Kenya to compete with South Africa for pan-African business.

Previously, if an international corporation invested in a pan-African tech project, it was all but obvious that the tech project would be managed by a South African company, given that the country embraced technology ahead of many African countries.

But with the entry of fiber-optic cables along the Eastern seaboard three years ago, Kenya has emerged as a new tech power, with companies tackling projects in the financial, utility, telecom and government sectors.

Mobile commerce services provider Cellulant was recently awarded continental tech projects by Standard Chartered Bank and Barclays Bank while systems integrator and service provider Seven Seas Technology was awarded a large infrastructure project in Zambia and has enterprise-level projects in Zimbabwe, Rwanda, Burundi and Ethiopia.

Other companies handling regional projects are financial systems company Craft Silicon, ICT service provider Next Technology and IT services company Software Technologies, among other companies.

“The South African market is by far a large and mature market but also very regulated; apart from being a market that is offering single-digit growth, Kenya offers high-margin growth opportunities but there are risks involved,” said Michael Macharia, CEO and founder of the Seven Seas Technology Group.

Entry of global brands like IBM, Oracle, Cisco, Microsoft and Ericsson, among others, has led to increased competition for local contracts in the financial and government sectors. Major financial and government contracts have been awarded to global companies.

“Over the past five to 10 years a number of major global organisations have set up head or regional offices in Nairobi — Google, Ericsson, IBM, Huawei, Coca Cola, Airtel Group all have made major investments in infrastructure, equipment and most importantly skills,” said Simon Lee, technology and telecommunications consultant at Africa Analysis.

Analysts say that the presence of global brands has benefited the country through business investments, knowledge transfer and investment in skills training, but with the higher salaries offered by some of these companies, local firms have lost qualified staff.

This forces local businesses to keep training staff in order to stay competitive. Most of the companies providing continental services have in-house training centres to cope with demand and to replace staff who leave.

In South Africa, the government has mechanisms that explore availability of local expertise before awarding contracts to international companies, but in Kenya such policies do not exist, forcing companies to look to the regional and continental market for areas where major brands have yet to establish a presence.

“We are finding that our experience in growing in a market that offers no protection for local firms has given us a competitive edge in how we approach our markets and mitigate the associated risks,” Macharia added.

Local companies have been pushing the government through the Kenya ICT Board to develop policies that encourage public and private institutions to engage local companies, especially in contracts that do not require intense capital and a complex skills set — areas that many small and medium companies fail in.

However, more and more universities are offering tech courses, and a culture of innovation is being fostered by a growing number of co-working spaces and incubation hubs, analysts point out. Two years ago, iHub in Nairobi was set up as the first innovation hub in East Africa, but the number has rapidly grown.

“The culture of indigenous innovation has been steadily growing; successful companies such as Wananchi, AccessKenya, KDN, Seven Seas and to a certain extent Safaricom are all homegrown organisations with majority Kenyan ownership and staffing,” Africa Analysis’ Lee said.

“These companies have pushed the barriers of technology to meet the needs of the population and spawned innovations such as Ushahidi, M-Pesa and the like that have revolutionised their particular spheres of operation,” he added.

Ushahidi is a nonprofit software company, while M-Pesa is Safaricom’s mobile money service.

While much of the growth in IT may seem to involve bigger companies in business for at least five years, smaller companies that have grown out of co-working spaces or have been started by former employees of the local big companies have also found a way to develop in the regional market.

“Specialisation is one of the major ways for companies to grow,” said Conrad Akunga, co-founder and director of Innova Ltd. “For instance, we work in the finance and investment instruments space; this requires a lot of know-how, expertise, research and continuous market analysis and intelligence.”

Akunga, who led the Virtual City Ltd. team that won a US$1 million innovation prize from Nokia last year, feels that emerging companies are not specialising and do not provide services that best suit their qualifications, making them lose out to international brands.

However, Kenya’s relatively stable policies and politics have been cited as a major asset, given that the country’s neighbors — Sudan, Ethiopia, Uganda and Somalia — have various forms of security issues.

The Kenyan ICT Board, in place for five years, has encouraged local and international investment. Members of the board have engaged venture capitalists and the feeling is that emerging companies can and should provide services that can be scaled to the region, given similarities among culture and language, as well as challenges faced.

“In my discussions with venture capitalists, they now are very specific about funding companies locally that have ideas and business models that can be scaled across markets because it makes their investment more attractive in the long term; in fact they are becoming hesitant to deal with companies which are too locally tied and whose existence depends purely on local sensitivities,” said Paul Kukubo, CEO of the ICT Board.

One of the more surprising reasons that Kukubo and Lee cite for the growth of Kenyan companies was the expansion of the Kenya Airways route. The airline now provides direct flights daily to West, Central, South and North Africa, which means that major projects can be more easily implemented at manageable costs compared to five years ago.

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