Archives for category: Technology

The “Africa rising” narrative in Kenya is always linked to the ICT sector, in particular mobile technologies, mobile apps, and internet-based applications. I wonder what will happen to this optimism after learning that Mocality, one of the big investors in this field, decided to shut down:

“Mocality has achieved some incredible things over the last four years, and has touched the lives of many people in Africa, but alas, all good things must come to an end.”

Few ICT enthusiasts in Kenya saw this announcement coming. Mocality, the online business directory owned by Naspers, a South Africa-based media company, will close down operations in Kenya and Nigeria on February 28th. In 4 years Mocality managed to register over 100.000 businesses in Kenya. The plan was to expand throughout Africa and create the largest business directory in the continent –none of this will happen.

Is this a hit to ICT-led afro-optimism?

To some extent, I believe it is. Or at least, it has brought some realism back to the discussion on ICT in Africa. In this blog I always argued that the expansion of the ICT sector is a great opportunity, but it has to go hand by hand with expansion in the industrial sector, manufacturing in particular, or it’ll be a hype, or even a bubble, with little effects on job creation and sustained economic growth. But if you look at the media coverage on the topic, hype has been all over the place. Look at Wired UK a year ago:

Want to become an internet billionaire? Move to Africa”:

If you want to become extremely wealthy over the next five years, and you have a basic grasp of technology, here’s a no-brainer: move to Africa.

Wired is not the Journal of Development Economics, and the exaggeration is probably intentional (I hope so anyway), but it signals the hype surrounding the ICT sector in the continent.

Perhaps Mocality made its move in the Kenyan market a little too early. Perhaps the problem is much deeper and the Kenyan market is simply not ripe for this kind of business. Mocality did not explain the reasons behind their decisions to close down, but rumors are that  the operating costs were too high and the returns on the investment were not satisfactory. We can’t forget that the Kenyan economy is still largely informal and being online or not doesn’t make much of a difference for most enterprises.

But Kenya is also a fast-growing and fast-evolving economy, and the optimists among us might argue that Mocality is leaving the market just a little too early. Mocality CEO Neil Schwartzman had a very different opinion, however, stating that:

“reaching profitability was not a reasonable near-term prospect.”

Ouch

Konza Technological City

After Tatu city –a multi-million real-estate project to build a satellite town in the outskirt of Nairobi, the Government of Kenya has planned a new mega-project called Konza Technological City, already dubbed “African’s Silicon Savannah”, which is supposed to become the largest hub for high-tech and ICT firms in Africa.

The government bought a large piece of unused land in Machakos county, about 60 kilometres south of Nairobi, with the plan of investing $200 million in basic infrastructure (sewage, roads, electricity, etc); the rest of the investment should come from the private sector through public-private partnerships. There’s nothing official yet, but it looks like Boeing, Fedex, Huawei, RiM and Samsung are already lining up in the project. The main Kenyan interest is coming from Safaricom, Wananchi Group, the University of Nairobi and Jomo Kenyatta University for Agriculture and Technology among others. According to the promoters of this project, Konza will create 20.000 skilled jobs in the next 3 years, 200.000 by 2030.

Of course there’s great excitement all over Kenya. I was in a restaurant in downtown Nairobi yesterday and I noticed that most tables around me were talking about it. Though, thrill was mixed with a good dose of skepticism  I wondered myself: is this really going to work out?

To some extent, it looks like the government is playing Sim City, a popular video-game where you build cities from scratch. You have a budget, you start building roads, power-plants, water and sewage systems and you assign different areas of your city to industrial plants, commercial activities or residential houses. But the difference is that in Sim City you start with small projects and eventually, if you are successful, you expand them. Konza seems to be the product of a grand-design, a city where everything is pre-planned, and nothing is supposed to evolve through trial-and-error. There will be no space to figure out what works and what doesn’t.  It either goes the way that planners have in mind, or it will just be a great failure.

This reminds of the debate on charter cities. The main difference is that Konza will not be managed by foreign governments, with foreign rules and foreign institutions, so unlike charter cities Konza will not revamp any memories of colonialism. On the other hand, just like charter cities, I’m not sure whether cities with no history can grow out of nothing.

In one of my favorite articles on urban development, Edward Glaeser shows the development of New York since the early 19th century. The city grew thanks to an endless sequence of innovative ideas and entrepreneurialism, none of it happened because of a grand scheme. I recommend reading the whole article, but if you don’t have time, Glaeser basically shows how (1) New York initially developed due to a natural and geographic advantage; (2) it grew when an entrepreneur changed the logistics of trans-Atlantic trade; (3) increased trade helped the development of the sugar refining industry, apparel manufacturing and printing.(4) The economy eventually turned into real estate and the garment industry and  finally, (5) the finance sector boomed.

This is a terrible summary of a great article. But the point is that the development of the city did not follow a straight line. The face of the city and its economy changed completely over a relatively short period of time. Of course Konza is not New York, but I do not think that the dynamics of urban development are so different. Just like New York, Konza will not succeed unless it develops gradually through entrepreneurialism and innovative ideas. A small push from the government will be helpful; having bureaucrats playing a real-life version of Sim City will end up in certain failure.

But let me get back to the restaurant conversations I overheard yesterday. What was the skepticism about?

Criticism of Nairobians did not involve Edward Glaeser, New York or Sim City –It was much more practical. The most common points were rather spot on:

  • Konza city is ultimately a real estate project, not a technology one. The real goal is to increase the value of the land
  • Most businesses interested in the project are not Kenyan, what about the plan to promote local entrepreneurship?
  • Corruption will be all over the project.
  • How do you get thousands of skilled workers and their families to move from Nairobi to Konza? Customers will not move to Konza as well. Logistics will be an issue, especially for smaller businesses.

These are all interesting points, and a lot of food for thought.

Taiwan, year 1983. The plan of the government consisted of 3 simple steps:

  1. Identify an imported product that you want to produce locally.
  2. Use red tape to slowdown the import of that product
  3. Let local firms learn the technology, get good contracts, and start producing that good.

As bad as this story may sound (nobody wants red tape!), the strategy was actually successful:

 In the early 1980s Phillips was making TVs in Taiwan, and importing a certain kind of specialized glass from its factory in Japan. The IDB team [Industrial Development Bureau, a Taiwanese government institution].. identified two or three Taiwan glass makers which in their view had the productive capability to make the jump in product quality needed to produce the specialized glass at a price close to the import price. They discussed the possibilities with the firms. The firms said they would invest in the necessary equipment provided they got a longterm supply agreement with Phillips.

Of course Philips didn’t like the idea.

The IDB officials went to Phillips. The Phillips procurement manager said the company was happy with its present arrangement of importing the glass from its factory in Japan, and declined to change suppliers. Soon Phillips found that its applications to import the glass, previously automatically approved, began to be delayed. Phillips contacted the Minister of Foreign Trade, who apologized profusely, and explained that even he was not always able to get the inefficient trade bureaucracy to work quickly. He promised to investigate. The delays lengthened, and lengthened again. The Minister apologized and said he had done all he could. Eventually Phillips got the message, and entered into discussions with one of the Taiwanese glass makers. The upshot was that Phillips offered a longterm supply contract, and the domestic glass maker invested in upgraded equipment. Before long the Taiwanese glass maker was exporting some of the specialized glass.

 I wrote a blog post about this paper a few months back.  It is by LSE professor Robert Wade. Full article is great and you can find it here (pdf)

What has happened in the global wine industry is extremely interesting from a development point of view because the latecomers in the international market have radically changed how wine is produced, sold and consumed.

Up to the end of the 1980s, ‘Old World’ (OW) countries, and particularly France and Italy, dominated the international wine market. Since the beginning of the 1990s, their supremacy has been challenged by new international players, who are recording spectacular performance in terms of both exported volumes and values. These ‘New World’ (NW) countries include affluent frontrunners that are relatively new to the wine sector, such as USA and Australia, and less developed but rapidly growing latecomers such as Chile, Argentina and South Africa.

Roberta Rabellotti, professor of economics at the University of Pavia, argues that the spectacular performance of emerging markets is not explainable with the traditional “catching-up theories” of development. Rather, things changed thanks to the opening-up of new windows of opportunity in the industry.

 the traditional catching-up theories fall short in explaining what has occurred in the global wine industry, as they treat developing countries as non-innovators and contend that their catching up is possible essentially through the import of frontier technologies and/or organizational business models from the advanced forerunner countries (Abramovitz, 1986). As opposed to this, what has happened in the wine industry is an excellent empirical illustration of Perez and Soete’s (1988) windows of opportunities opening up for lagging countries at times of relevant discontinuities.

  a first significant window of opportunity in the sector opened up in the 1970s, as UK regulations changed and allowed supermarkets to retail wine, giving rise to a new market dominated by the baby-boomers. This new market boosted Australian wine production and exports and was followed by a radical transformation in wine demand, which included consumers from countries where wine has never been a traditional beverage, such the UK, the USA and the European Nordic countries.

 … While most of the rhetoric about innovation systems in developing and emerging countries is that weak linkages characterize them, what has happened in the wine industry shows the opposite. Both in Chile, Argentina and South Africa firms have managed to create a web of relations that has positively affected the sector’s product and process upgrading. Besides universities, intermediary bodies play a role in connecting firms to new technological knowledge.

Full article

If you missed the recent news, 1.5 million counterfeit mobile phones were switched off in Kenya over the last few days. Basically, if your phone doesn’t have an IMEI code (you can check that by typing *#06# on your mobile), it will be turned off by the mobile operators. According to the Communication Commission of Kenya, Safaricom turned off 680.000 phones, Orange 75.000 Airtel 740.000, Yu 45.000; other operators have not yet released their data.

This “great switch off”, however, sounds like business for some informal sector operator:

 

Alert: this ad is probably just a joke!

HT: Easy FM

The future is about “mass-customization”, says The Economist:

The first industrial revolution began in Britain in the late 18th century, with the mechanisation of the textile industry. Tasks previously done laboriously by hand in hundreds of weavers’ cottages were brought together in a single cotton mill, and the factory was born. The second industrial revolution came in the early 20th century, when Henry Ford mastered the moving assembly line and ushered in the age of mass production. The first two industrial revolutions made people richer and more urban. Now a third revolution is under way. Manufacturing is going digital.

…The factory of the past was based on cranking out zillions of identical products: Ford famously said that car-buyers could have any colour they liked, as long as it was black. But the cost of producing much smaller batches of a wider variety, with each product tailored precisely to each customer’s whims, is falling. The factory of the future will focus on mass customisation—and may look more like those weavers’ cottages than Ford’s assembly line.

The article is about 3D Printing, aka “additive manufacturing”, a process for building three dimensional objects designed on digital files. 3D printing technologies have boomed over the past few years in the production of all kind of products, from  jewelry to footwear, carsdrugs and lots more. If you dream to be the new Willy Wonka, you can also buy a chocolate making 3D printer for just above $4000.

Will 3D printing sweep away traditional industries and trigger a process of “creative destruction”? The Economist says that it depends on governments:

Consumers will have little difficulty adapting to the new age of better products, swiftly delivered. Governments, however, may find it harder. Their instinct is to protect industries and companies that already exist, not the upstarts that would destroy them. They shower old factories with subsidies and bully bosses who want to move production abroad. They spend billions backing the new technologies which they, in their wisdom, think will prevail. And they cling to a romantic belief that manufacturing is superior to services, let alone finance.

I do not agree on some points, but the article is interesting throughout.

It’s fuzzy, it’s trendy, and it’s not even clear how new the whole concept really is. The passions triggered by the new breed of enterprises we now call social may even appear to some almost cultish.

They operate as private enterprises, often with a strong entrepreneurial and innovation culture, but claim to have a broader purpose than just maximizing financial returns for shareholders. They aim to be sustainable (i.e. commercially viable) though they don’t shun grant money from foundations and aid programs to get them started […]

Social enterprise investment has the potential of taking the mantle from microcredit, a movement which galvanized people from the left and the right alike around the notion that poor people could be helped to help themselves. Microcredit ultimately failed to build on its own success: products remained narrow, inflexibly designed and very expensive, and the notion that there was a causal link between microcredit and micro-entrepreneurship is proving tenuous. Social enterprise investment is a much more open-ended –and hence potentially more flexible and holistic—approach to spurring entrepreneurship at the base of the pyramid.

Check out the full article. Interesting throughout.


You probably have noticed that the East African blogosphere has remained rather silent over the past few days. It’s not because of laziness or lack of interesting topics to talk about, it is because internet has been off or very slow since last weekend. What happened? From The Guardian

The old theory that a butterly flapping its wings can cause a hurricane on the other side of the world may be somewhat far-fetched. But that a ship dropping anchor can disrupt the lives of millions has become painfully evident.

That is what happened off the Kenyan coast when, by unlucky chance, an anchor scored a direct hit on an underwater fibre-optic cable.

The knock-on effect is a predicted 20% slowdown in internet speeds in KenyaRwandaBurundiTanzaniaEthiopia and South Sudan [...]

Fibre-optic cables are typically composed of about four strands, each the diameter of a human hair and capable of carrying millions of phone calls and data connections simultaneously.

I had never realized how vulnerable East Africa is to a few fiber optic cables. There are only three of them servicing the region (TEAMS, EASSy and SEACOM) and two are not working at the moment. It will take three weeks to fix the problem.  This will be a hard time for the growing number of  internet start-ups in the region.

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