Innovations out of Africa – the continent is changing

For several decades Africa was regarded as a continent dependent on western aid. However, within the last years a different picture has started to emerge.

The continent is changing: Today Africa is generating innovations that are relevant to international markets. The introduction of a mobile payment system from Kenya, M-Pesa, in Romania clearly illustrates this paradigm shift.

Both mobile services as a basic infrastructure and the continuous increase of fast and powerful Internet access capabilities have played an important part in this. In 2012 Africa’s annual economic output rose by 4.7 percent – constant economic growth and increasing investments are anticipated in coming years.

Usage of mobile money

Kenya leads the World in the usage of mobile money.

Beyond the economic success stories, an aspirational technology scene has grown up on the continent. Kenya’s capital Nairobi, the birthplace of M-Pesa, has established itself as the “tech centre” in Africa within seven years. The rise of M-Pesa is impressive: in 2007 the local mobile services provider Safaricom in partnership with its shareholder Vodafone launched a mobile-based money-transfer service as a non-profit project. Just six years later a third of Kenyans (17 million people) were using their mobile phone to transfer or save money.

Opportunities for developing innovative products in Africa are wide-ranging

The project’s success and the national and international attention it attracted as a result are considered to be particular catalysts for the differentiation and professionalisation of the Kenyan tech scene. The interplay of “from above” (a mobile services company that drove innovations forward) and “from below” (individual actors interested in technology) facilitated a culture that was unique in Africa at that time.

An economic and social climate emerged in which resources could be pooled and the key thinkers of the Kenyan tech and start-up scene cooperated to offer mobile services and use mobile technology as a distribution channel. The opportunities for developing innovative products in Africa are particularly wide-ranging: Successful apps such as the mobile learning software Eneza, m-Farm, a service for farmers, and the medical information service medAfrica illustrate the cross-sector potential.

The rise of a technological ecosystem

The rise the technological ecosystem in Kenya.

Despite these impressive developments, the challenges remain substantial: Kenya’s tech ecosystem is young and still unstable. The success story of M-Pesa has yet to repeat itself. The media-inspired nickname “Silicon Savannah” makes it difficult to discuss the potential of the Kenyan technology sector objectively. In fact, the framework conditions for entrepreneurship in Kenya are considerably less favourable than in the western world and setting up a profitable company entails enormous risks. Funding instruments from the western technology sector cannot be transferred one-to-one.

How to establish a technology ecosystem

In order for Kenya’s technology ecosystem to establish itself in the long-run, the specific regional conditions must be foregrounded within the activities of innovation policy. This means:

1. Create access to funding capital

An omnipresent problem in the start-up world is the lack of funding opportunities. What is lacking in Kenya are low funding sums in the start-up phase that enable companies to cover their living or hardware costs. At the same time, few Kenyan investors are taking stakes in tech innovations because the anticipated profits are still low and the risks high.

Development organisations and companies should commit themselves as investors or provide start-up grants as part of longer-term funding programmes. Equally, they can act as intermediate organisations for the distribution of micro-funding to reduce the transaction costs for investors.

Incentives need to be created for investors and business angels for example by the government in order for micro investments to be made. Business angels should be specifically targeted due to their non-monetary support. Universities must promote funding concepts that correspond to the specific requirements of start-ups in developing countries.

2. Promote lasting structures

Investing in Africa means investing in future potential. Investors who enter the market expecting a short-term reward have little prospect of success and send the wrong signals to future company founders. Instead, investors should provide long-term incentives for entrepreneurs and enable sustainable business models.

Specifically this means that, instead of high one-off monetary prizes, companies and institutions should offer long-term support and targeted monitoring at start-up competitions. The creation of mentor networks should be promoted at local level from the government side and at international level by development organisations taking the diaspora into account.

3. Establish competences

Kenya’s population is comparatively young and has an enormous willingness to operate entrepreneurially. Kenyans are increasingly acquiring programming skills. However, very few have the relevant management knowledge to successfully realise business ideas.

In the long term African universities need to anchor management competence in their teaching. In the short term institutions that promote start-ups or convey tech skills should combine this with training in commercial management. Development organisations and IT companies can use grants and internship programmes to promote entrepreneurial and management talents.

Technological innovations are based on good ideas – and hardware. However, the African tech scene faces huge obstacles when it comes to procuring the necessary components. This is to do first with restrictive framework conditions for obtaining materials (lack of logistical infrastructure, high customs levies) and second to a shortage of training opportunities for hardware engineering.

Governments need to substantially improve the import and export conditions for hardware as the basis of a technology-based economy. Development organisations should promote programmes for expanding competence in the area of hardware production.

4. Set up stable real and virtual networks

In countries where entrepreneurs suffer from severe financial restrictions, the creation of technology meeting places (co-working spaces, incubators and accelerators) is particularly relevant. They enable access to hardware equipment, infrastructure, affordable premises and potential business contacts. Governments, companies and development organisations should support the spread of such places in a targeted manner.

Similarly, locations for the international transfer of knowledge should be created. Development organisations should offer exchange programmes between western and African start-ups and award travel grants for international conferences. Additionally, special entry and visa terms for African interns and students from the technology sector should be developed in cooperation with the African governments.