COMPETING IN WORLD ICT MARKETS - AFRICA NEEDS TO RAISE ITS GAME
25 October 2002
Africa imports nearly all its hardware and software and exports very little ICT work of any value to the rest of the world. Put simply, its ICT "balance of payments" is hopelessly skewed against it. Unless Africa gets a focus on the need to get into international markets it will find itself again playing the world’s poor relation. On the eve of AITEC’s African ICT Showcase taking place this week in the UK, Russell Southwood assesses what is missing out on and its best prospects for the future.
In broad terms there are four areas of ICT opportunity that any country might seek to attract. Ranked according to their place in the "value-chain" these are as follows:
* Direct investment in manufacturing.
* Software development (including R & D).
* Value-added services.
* Data inputting.
Direct investment in manufacturing tends to follow market size. So for example, China is the second largest destination for foreign direct investment after the USA. By comparison, Africa’s telecoms and computer markets are relatively small. ICT manufacturers in the developing world tend to be found in Asia or in "offshore platforms" like Mexico. There are interesting exceptions: chip-maker Intel has invested in Costa Rica and has plans to do so in Egypt. Africa has small-scale assembly operations but their product tends to go to regional markets. Manufacturing requires large amounts of "brainpower" and skills in depth.
Software development (and R & D) needs low-cost, high-quality engineers. Even somewhere as large as South Africa that produces hundreds of thousandsw of graduates only has 3000 in maths and science subjects. By contrast, India’s Bangalore has a variety of developed company R & D facilities and develops software. Texas Instrument’s facility alone has registered 200 patents and Oracle developed its Student System software there. Banking systems company Egar Technologies does most of its development with what one insider described as "a bunch of Russian ex-rocket scientists."
Africa has slightly more capacity in this area. There are a small number of regional companies producing original branded software: Soft (Ghana), Software Technologies (Kenya) and Pastel (South Africa). And there is even the occasional software contractor: Zimbabwe’s Cyberplex Africa does 80% of its business outside of its country base. The cost advantage alone should make this possible. Its programme work for Deloitte in the USA cost them US$10,000 against the US$90,000 it would have cost them in North America. Buying local and selling in dollars is a strategy that can work.
Value-added services are about taking data and doing something to it that adds more money to its resale value: two mini-case studies below will explore this in greater detail. The challenge for Africa is to carve itself a niche for itself in this part of the "value-chain". There are few examples of this kind of work in Africa to my knowledge: the VOIP-based call centre might be put in this category. However there are companies - like Kenya’s MediaAfrica and Law.com - that have the expertise to do this kind of work.
Data inputting is the lowest end of the "value-chain". If knowledge of English is not available, those offering this service often offer double entry and do automatic comparisons. Inputters do not understand the content they are typing in. This work started in India when the large online databases like NEXIS were set up. However for reasons of cost this low-value work has now moved to places like China and the Philippines: publisher Thompson has a huge inputting centre in the latter. Africa has barely entered the market. Ghana has several examples. US company ACS has a large operation and a company in Busy Internet does entry work for the environmental enforcement department of a large US city. There are plans to set up a company in Uganda to do offshore accountancy processing Africa’s competitive edge would be to target the banks and insurance companies of the developed world who are looking to cut "back-room" costs.
Africa’s competitive position could not be lower. In many of Africa’s mid-scale countries, the pool of software engineers numbers in the hundreds and inevitably a proportion have outdated skills. In its competitor countries, people with these skills number in the thousands and many have current or near current skills. With the small exception of South Africa, there is no R & D capacity. Zimbabwe’s SIRDC has ambitious plans but these are in the future. There are little or no project management skills and no developed business culture to provide an easy common ground for international partners or buyers. Knowledge of English - the business lingua franca - is very variable. For example, Tanzania’s decision to make swahili its main language means that its ICT community will probably be less proficient at accumulating the knowledge it requires in a second language.
So what are the positives? Well it’s cheap but then so are many other places. Being cheapest is not a sustainable strategy. Like India, it has a worldwide diaspora but they have not yet proved as their Asian counterparts. Give it time. Other advantages?...Errr...That’s it. There is potential but somehow ways have to be found to convert it into actual opportunities.
A TALE OF TWO COMPANIES
There are two small to medium sized UK companies that do outsourcing business in India. What can be learnt from their experiences? Company one produces daily information on corporate actions and dividends for security houses and data vendors. It monitors 131 stock exchanges worldwide. Company two is the UK’s largest environmental information company providing reports (directly or indirectly) to about 25% of UK homebuyers.
Why do they outsource in India? It is cheaper. One of them calculated that it would pay as much to simply recruit people in the UK as it does for its whole contract in India. The country has specific skills: for example, company one is dealing with a counterpart that produces Indian Stock Exchange data. There is a reasonable if not perfect telecoms infrastructure. It has a base of project management expertise. Although each company has continuing concerns, there is an overall level of reliability and competence. The negatives? Corruption, no direct flights to the cities where the contractors are based and occasional power outages. India is not hassle-free but both companies’ senior executives enjoy doing business there.
The scale of business is not large but would be substantial in African terms. Company one deals with 10,000 sheets of information a day. The contract is in the hundreds of thousands of pounds and it employs 25 people. Company two has digitalised and processed 100,000 maps. Contract value was £0.5 million. 200 people were employed in the start-up phase and fifty thereafter. The country has project capacity at a large scale.
The process of doing business is instructive if Africa is going to seek to compete. Company two took 6-9 months doing pilot exercises and testing methodologies. This setting up phase was financed by the Indian contractor. Company one scans all its information into digital form and then FTPs it to India. Information comes from 23 countries where the data has to be translated into English. The data is then put into database fields. The work is extremely time-sensitive. Company one’s contractor also does bills and accounts for a developed country utility company. Company two borrows the original maps and scans them in and then sends a tape of the data to India. The contractors check the images are alright, trim the borders and transfer the data on to a "master" map.
Would they transfer this kind of work to Africa and how do they compare it with India? The problems of the Indo-Pakistan border dispute made this something more than an academic comparison. American companies in particular are particularly sensitive to political risk and this obviously cuts off large swathes of Africa.
The senior executive from company two was born and lived in South Africa so is not completely unfamiliar with the continent. Both felt that India was probably safer and that safety was an important factor for visiting UK staff. One had considered Ghana but had been put off by power problems and the lack of specific skills and expertise. Both felt that the telecoms infrastructure was substantially worse. The main positive would be that there would be direct flights to cities in Africa. However their view of this one small advantage was rather undercut by people telling them about what it would be like to use Accra or Lagos airport.
CONNECTING INTERNATIONALLY - HOW MIGHT AFRICA DO IT?
There are three interlocking approaches: on an individual company basis; through creating consortia of service providers; by marketing the sector in a location or by marketing nationally. The difficulty for an individual company is whether it has the resources to support marketing itself internationally. If you do, then it’s very much a case of who do you want to meet? There are currently few trade events that encourage this kind of "dating". Another approach is to partner with a developed world company with common interests: this is where the African diaspora and its ICT companies might yet come in. There are also probably worse ways of making international connections than acting as a reseller of something related for an international company. It is important to meet intermediaries - the consultants who put together this kind of business: Canada’s Perwit International has done several interesting contracts in Africa. Finally it may be necessary to open offices in key markets like the US, the UK and India.
If you are too small as an individual company to take this on, it might be worth putting together a network of complementary providers: software, project management, trainers. The key would be to pull in a developed country company that could act as the conduit for new business. Any network of this kind will only be as strong as its weakest link.
Another approach adopted by CITI (Cape Town Information Technologies Initiative) is to have a strategy to attract companies and outsourcing work by marketing its incubator unit and the ICT skills already in Cape Town. It points to its early success with IntelligenceQ. The company obtained a software development contract for an accounting product for a UK company. The CITI initiative is funded through a mixture of public and private funding.
The last approach is the marketing of a country or a region within a country by Government agencies set up for this purpose. Proponents of this approach point to the success of Scotland (Silicon Glen) and Ireland. These strategies are almost entirely state-funded and need to be very focused to obtain results. These development agencies can also act as brokers introducing companies enquiring to companies with relevant skills. However where these services are run in Africa they tend not to be as effective as elsewhere.
Can Africa compete in these markets? Of course it can if it wants to but everyone involved - the private sector, government and higher education - will have to raise their game to make it possible.