Kenya and South Africa offer insights into digital economy challenges and alternatives
The
World Bank is warning of the real danger of a massive economic
downturn across the world. In a recent analysis it warned that many
countries – including those in sub-Saharan Africa – will be facing economic
challenges due to rising food and fuel prices.
At
the same time, however, there is unshakeable optimism around the growth
potential of African economies as a whole and specifically the digital economy. The rapid rise of tech hubs and startups in
urban areas in sub-Saharan Africa in recent years seems to support that.
Many
observers have, therefore, identified the digital economy as an important driver of long-term growth in Africa despite
current global challenges.
The
reality is that experiences with promoting the digital economy in sub-Saharan
Africa have been mixed. Following great hopes in the promise of “digital
connectivity” in the early 2000s, many scholars have observed that the
ability of African businesses to turn connectivity into success in global
markets has been limited.
The
future of Africa’s tech scene is equally uncertain. Despite great potential,
the tech startup scene is underfunded, and several
tech hubs have had to shut down due to bankruptcy.
How
can we explain this gap between promise and reality with digital economy
investments in sub-Saharan Africa? And how can investments lead to more
sustainable growth?
In
my recent study I analysed the historical case of
global business services in Kenya and South Africa to examine why governments
and businesses make certain investment choices over time, and how they can
learn to be more in tune with the context of sub-Saharan Africa.
The
main finding is that global templates of success, such as meeting global
standards and developing scalable business models, often stand in the way of
realising the full potential of locally specific skills and business
opportunities. As I show below, this has fundamental implications for today’s
digital startup scene in sub-Saharan Africa.
Flawed
hopes
The
promise of the digital economy has always been a double-edged sword. Many global consulting firms and international
organisations initially saw “digital connectivity” as a key driver
for the future growth of African economies. Even today there is a strong belief
that you just need to have the right infrastructure in place for the
digital economy to grow and create jobs.
This
optimism led the Kenyan government in 2007 to define business process outsourcing as a central pillar in
its Vision 2030. The assumption was that Kenya had the talent and
internet connectivity to copy India’s success in this business. In a similar
fashion, South Africa’s business leaders put their hopes in call centres, which
had previously generated many jobs in India and the Philippines.
But
these hopes turned out to be flawed. Digital businesses are often easy to get
into but difficult to compete in – especially on the global stage. To win client
contracts in a highly standardised digital business, such as call centres and
tech support, you need to be scalable. Yet, to succeed with scale you also need
to be cost competitive and develop a strong reputation.
Kenyan
business process outsourcing services were neither scalable nor competitive. As
a result they soon went out of business. A famous example was KenCall, a once-hyped Kenya-based call centre
that could not keep up with global competition.
South
African call centres had the scale. But competition from the Philippines put
enormous pressure on them.
The
current tech startup scene seems to be facing similar challenges: scalability of new ventures has been a serious issue.
In part this is due to poor support infrastructure as well as global
competition.
Lessons
learnt
In
the case of global business services, Kenya and South Africa learned their
lesson. Initially, trying to meet global standards and keep up with global
rivals was seen as desirable in the eyes of governments, businesses and the
general public. But as competitive pressure grew, the agenda changed from competing globally
to avoiding global competition, from meeting global standards to focusing on
locally specific skills and resources.
As
a result, both economies invested into niche business segments. For example,
Kenyan business process outsourcing providers increasingly focused on local and
regional clients rather than trying to compete for clients from Europe and
North America.
In
the case of South Africa, business services increasingly diversified into more specialised areas such
as legal process outsourcing, to lower global competitive pressure.
Also,
both economies promoted so-called impact sourcing, which focuses on hiring and
training disadvantaged young people from slums and rural areas, combining
employment opportunities with community impact. What these niche strategies
have in common is that they are less subject to global competition, and that
they rely on locally embedded resources, such as local client connections and untapped labour pools in local communities.
Some
of these niche models emerged even before they became fashionable. In fact,
their ability to survive against the mainstream gave them a competitive edge,
allowing them to survive in the long-term.
A
similar dynamic might be unfolding with today’s tech startup scene in
sub-Saharan Africa.
Alternative
models
It’s
still fashionable today to promote tech startups and tech hubs based on models
from the global North. But new, alternative models might be emerging that might
be much more sustainable.
For
example, studies suggest that African businesses are traditionally much more
community-focused. Businesses exist to support communities rather than just to make profit.
Research shows that while African tech hubs often “fail” to scale up businesses
in the Western sense, they are very effective in providing individual growth
opportunities and in expanding and deepening community connections.
Such
experiences suggest that concepts of “scalability” and “growth” may take on a
range of meanings in sub-Saharan Africa, and that the global North should
expand their horizon beyond their narrow conception of these terms to really
understand Africa’s economic potential.
Recent
reports may be right that the digital economy carries a lot of potential in
helping sub-Saharan Africa overcome current economic challenges towards
sustainable growth. But maybe it is not because the digital economy can merely
drive economic growth in the conventional sense, but because it can expand
regional business networks and local communities, and make them more resilient
against global economic threats.
[Written By: Stephan Manning, Professor of Strategy and Innovation, University of Sussex.]
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