Government efforts, Spillover effect and the Kenya Tech Ecosystem
Just over a week ago, iHub hosted Dalberg, a consulting firm to collect feedback from the iHub community about the Konza city project spearheaded by the Kenyan Government and investors inc. the IFC.
In my opinion, I thought the session did not go as planned. The non presence of a Government official of any sort meant that questions from the audience were directed to Dalberg who were basically acting as a messenger or facilitator- AKA “shoot the messenger”.
Dalberg was keen to establish that the community should provide feedback to Konza and act like it is going to happen, rather than debate what else the Government should be doing. A lot of the allocated time was wasted just clarifying this issue.
The most important thing that I thought was lost in the conversation is to address whether tech park cities help innovation and entrepreneurship in a direct manner. Since the audience at iHub is predominately small businesses/startups- it was a fundamental mismatch trying to get the focus on the needs of today’s entrepreneurs vs the Vision 2030 that Kenyan Government is trying to achieve with initiatives such as Konza. Entrepreneurs want investment yesterday, tax breaks today.
Various twitter conversations ongoing even last week continue to reinforce this view as to the expectations of not only Konza, but as to what the Government should be doing to help the “Kenyan” Techpreneur. Sometimes, I wonder whether various personalities liked to bound these discussions purely in the local context, i.e. inside their borders.
Youth unemployment is one of the biggest time bombs in Africa today (its not only a Kenya problem) and risks throwing any country into turmoil (as we saw in Libya to Egypt). The question Governments need to answer is what are the best ways to address this? Call centers and Business Process Outsourcing (BPO), a key cornerstone of Konza is one strategy, startups is another. Which one creates 1000s if millions of jobs quickest in the Africa context? Governments tend to address to what is easiest to achieve in concrete manner vs what is considered risky- of course, what might also get them votes…
Take Startup Chile, the president of Chile is a former entrepreneur himself and is clearly globally minded- in that context, the problem being solved is how to best reconnect Chile with the world and bring foreigners into the country to kickstart and integrate that economy. I am sure a nationalist Chilean is wondering how importing a bunch of foreigners and giving them $40,000 each is going to help him or her today… But the fact of the matter is, 100s of Startups have flocked to Chile and according to the team there, they told me the Government knew things were working when the benefits in tourism exceeded the cost of the program- or when one American with a family moved there with 4 children and those children enrolled in a local school as the first foreigners! It’s very tempting for someone looking at the short term to measure the startup chile program based on number of locals employed, follow on venture capital funding or exits…
In Japan, the country is trying to fight decades of culture and mindset of the youth expecting to work for a corporation vs Startup, and we are seeing them slowly losing their innovative edge. In countries like France, the employment laws make it is so hard to fire and hire employees at will that some would say its impossible to create a startup. I could go on… What do some of the best entrepreneurs do? They immigrate to greener pasteurs to chase their dream- that tends to be out west in Silicon Valley… Back in Africa its relative, it seems clear that Kenya is at the center of tech entrepreneurship innovation in Africa but many local startups don’t see it that way… Well guess what, if there is opportunity here outsiders will come seeking greener pastures from Tanzania, Uganda, Nigeria and Silicon Valley…
Just like the factory worker in Detroit today or the coal miner in northern England back in the 1980s, their complaints often ignore the realities of what is going on in the global context and Governments also can be out of touch with direct locals needs (important if they want to get re-elected). Let’s review a few key concepts:
- The world is flat, capital and knowledge now moves everywhere. Different countries build up a comparative advantage, China is now at the heart of manufacturing, India was outsourcing etc…
- Most countries are opening up to free market principles with pockets of resistance regarding immigration and efforts to nurture and protect local industries from the effects of globalization.
- Whichever country invests in both science and technology as well as infrastructure is well positioned to grow their Nation’s GDP and be competitive.
Konza in many ways is trying to propel Kenya even further ahead in Africa based on my last point which would attract more multinationals and investors to the region with the hope of a spill over into other areas of the economy to address key priorities such as the unemployment gap. As I mentioned, its not the only strategy one can pursue, Nigeria is taking one well known strategy adopted by Israel and Singapore, which is creating VC firms kickstarted with Government money but ran by private sector, the 1st dollar is often the hardest to raise in Venture Capital and I can tell you that for Savannah fund after talking to 250+ investors over 12 months, this is absolutely true. I would have liked to have gotten going faster with the right incentives and be able to invest in startups sooner, but that is the reality and I went ahead without any incentives or Government help at all (and that includes impact investors and Development Finance Institutions such as the World Bank). If we succeed or fail its because of our own efforts not necessarily because of the Government’s “assistance”.
One thing people should ask when comparing say Kenya’s strategy vs Nigeria is to not only look at the political motivations but also the comparative advantage of each country to achieve certain objectives. Its useless for an entrepreneur in Kenya to complain about how Konza won’t help them propel their small business- it clearly wasn’t designed for that!
Politics is an important aspect here of course, since Governments policies and actions can steer a nation towards a set of priorities which ultimately leads to votes. On the left, Governments like to get involved spending lots of taxpayers money on everything from hospitals, schools to grand projects like Konza. On the right, lower taxes and Government tends to have a hands off approach whilst focusing on creating an enabling environment for private sector to get involved. I once got into a heated argument with a kenyan lady who really wanted the Kenyan Government to be doing even more in tech, but it was hard for me to explain to her the dangers of this, yet alone did she realize the connection this might have on the Government budget and her taxes…
Take mHealth, an area ripe for Government and donor intervention- A private investor is less likely to invest in this sector just because public money can crowd out investors. In Africa, Governments are often the most visible customer driving spending vs say in USA where up to two thirds of the economy is driven by consumer spending. In short, what the Government in Africa does matters, even more so for more aid dependent countries like Tanzania which has a socialist past and hence tends to over-stretch themselves in Tech. Its nothing against the government, but the key is to note that many government officials just don’t have the skills or will to keep up with the fast moving tech industry, at best they can play the role of creating an enabling environment and get private sector help- clearly this is happening to a degree with Konza.
People should be asking more what private sector should be doing, not just for big tech parks, but the rest of the ecosystem as well, a lack of participation from local business leaders, I agree that many have a responsibility to give back and in growing the ecosystem they can also benefit, we call these people Angel Investors in Silicon Valley- in Kenya, last I checked, they are too busy or maybe even lazy to care, or maybe they are invisible and making money elsewhere, just not reporting it… Their voice and role is crucial in growing the ecosystem, particularly if they want to sustain it locally vs foreign money which can depart much easier at any time in Africa when problems hit.
Taken to the extreme, Tony Hsieh, CEO of Zappos and a startup veteran is trying to transform downtown Las Vegas and integrate a better “work-life integration”, moving his entire company, which is still part of Amazon. Is this a vanity project for Tony or is he executing on a vision similar to entrepreneurs that others don’t see right now? More importantly, whose job is it to grow cities? Mayors/Governments, business leaders or both? One of the most interesting facts Tony repeats a few times in his PandoDaily interview is research that shows as a city doubles in size, productivity increases 15%. And by fostering a community and increasing the number of “collisions” between people, great things are bound to happen. You kind of already see this at the iHub as Bishop Magua building is steadily being transformed into the iHub building, how long can it go on for till it runs out of space? Erik Hersman has been spending quite a bit of time setting up space for the new design/UX and supercomputer offices.
Back to Konza, its clear that the city won’t be a success if the community is not listened to and convinced. A city is not just a bunch of building, but schools, arts and it must have a “vibe”. That vibe must stand for something- Startups? Trade? Outsourcing?
So what do I have want from Konza? Well, if they have 24hr police force and low crime I might move there from Kilimani so that I can focus on my work without worrying about being robbed after work. After all, last I checked Governments at minimum should invest in security. Next education in science and technology… And even then, private sector is increasingly playing a big part as we’re seeing with the growth of hubs- if only this curriculum could be pushed down the chain. If you missed it, Estonia is planning to teach its children to code… Estonia gave birth to Skype and in its wake countless startups- my partner, Paul Bragiel was just there setting up a Gaming Accelerator. It should be clear from the last few sentences above why Paul was attracted to Estonia… What do you think attracted Savannah Fund to Kenya? Konza certainly wasn’t top of the list…
I end with one of my favorite quotes that my dad reminded me when I toiled in Tanzania trying to set up an incubator with the Government “Ask not what your country can do for you, ask what you can do for your country”– John F Kennedy. Or as my dad continues to remind me “Don’t give up on Tanzania”. Or as Brad Feld puts in his new book that only entrepreneurs who are not subject to election cycles can really drive Entrepreneurial communities forward. On this thinking we should expect at most Konza to be a center for Business Process Outsourcing (BPO) and multinational regional sales and customer service for middle class jobs to meet stated objective in Vision 2030, but burying our heads in the sand as entrepreneurs expecting more from it at this stage is a waste of time. If Kenya is lucky, there will be a spillover effect that affects startups due to better infrastructure, productivity through more “collisions” if a community does form around it. The only tangible question I asked about Konza was how fast it would take to get from Nairobi to the gleaming city given the traffic issues, apparently 30 mins from downtown- this reminds me of the twice a month commutes I made to Silicon Valley from San Francisco (note I used to commute more until Twitter, Dropbox, Zynga, Airbnb, Square and a whole legion of startups started being set up in the city, reducing my commute out to the original heart of Silicon Valley).
What will be Kenya’s comparitive advantage? BPO, mobile money and financial services innovation or reinforce its place as the regional head quarters for business in East Africa?
Let’s not forget- even Silicon Valley is stupid and is at the heart of its success.