future business in east africa 2016
TRANSCRIPT
Future Business in East Africa
State and Scenarios
May 2016
Contact information
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Amatka (Pty) Ltd
www.amatka.com
+27 (0)79 618 6570
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76 Regent Road (The Point Office Tower)
Sea Point 8060
Cape Town, South Africa
Amatka – Insight Africa Services
Amatka (Pty) Ltd is a South African company founded and owned by Finnish entrepreneurs based in
Cape Town. Amatka provides knowledge and views of business opportunities in Africa with focus on
Southern and Eastern Africa. Insight Africa also supports networking and go-to-market actions in
these countries.
Tekes – the Finnish Funding Agency for Innovation
Tekes is the main public funding organisation for research, development and innovation in Finland.
Tekes funds wide-ranging innovation activities in research communities, industry and service sectors
and especially promotes cooperative and risk-intensive projects. Tekes’ current strategy puts strong
emphasis on growth seeking SMEs.
Contents
Introduction ................................................................................................................... 2
Background ........................................................................................................... 2
Purpose ................................................................................................................. 2
Recommended Use and Liability Disclaimer ........................................................ 2
Overview ....................................................................................................................... 3
Key Indicators ........................................................................................................ 3
Political Economic Climate .................................................................................... 6
Business Environment SWOT ............................................................................... 8
Healthcare .................................................................................................................... 9
Facts ...................................................................................................................... 9
Innovation Ecosystem ......................................................................................... 10
Cases .................................................................................................................. 11
Learnings ............................................................................................................. 12
Energy ........................................................................................................................ 14
Facts .................................................................................................................... 14
Innovation Ecosystem ......................................................................................... 14
Cases .................................................................................................................. 15
Learnings ............................................................................................................. 16
Digital .......................................................................................................................... 17
Facts .................................................................................................................... 17
Innovation Ecosystem ......................................................................................... 18
Cases .................................................................................................................. 18
Learnings ............................................................................................................. 19
Future ......................................................................................................................... 20
Scenarios 2020 ................................................................................................... 20
Business Models ................................................................................................. 21
Conclusions ......................................................................................................... 22
Information Sources ................................................................................................... 23
2
Introduction Background
This report provides, in a nutshell, facts about East African countries and insights into
doing business in the following sectors: energy, ICT and healthcare. The report is
based on relevant statistics, recent articles and publications, and expert views. The
primary focus is on Kenya, yet Ethiopia, Rwanda, Tanzania and Uganda will be
covered to some degree as well.
The report has been prepared by an international team coordinated by Amatka (Pty)
Ltd based in Cape Town, South Africa. The report is part of Team Finland’s Future
Watch Program in Africa, called “Strategic Partners for Innovation Actives Africa
Services”, and is coordinated by Tekes, the Finnish Funding Agency for Innovation.
Purpose
The reports, and this service, focuses on issues, facts, signals and insights that are
likely to play a role in doing business in, for example, Kenya’s medium term future (2-
5 years). This report does not provide sales leads or provide a picture of how to
establish operations in any of the countries.
Using present facts and information, combined with future insights, signals, and
scenarios, the report suggests possible futures and the related implications for
Finnish SMEs interested in doing business in East Africa.
Recommended Use and Liability Disclaimer
It is strongly recommended that the readers always check the latest information;
situations in Africa can change overnight.
Amatka has made every attempt to ensure the accuracy and reliability of the
information provided in this report. However, the information is provided "as is"
without warranty of any kind. Amatka does not accept any responsibility or liability for
the accuracy, content, completeness, or reliability of the information contained in this
report. No warranties, promises and/or representations of any kind, expressed or
implied, are given as to the nature, standard, accuracy or otherwise of the information
provided in this report nor to the suitability or otherwise of the information to any
particular circumstances. Amatka shall not be liable for any loss or damage of
whatever nature (direct, indirect, consequential, or other), which may arise as a result
the use of this report, or from use of the information in this report.
3
Overview Key Indicators
This section provides some key indicators of East African countries.
Figures 1-4 illustrate selected key indicators (source: IMF World Economic Outlook
2016) for all East African countries, compared to those of Finland’s.
Figure 1. Population 2015 and 2020 (source: IMF World Economic Outlook,
April 2016)
Figure 2. GDP 2015 and 2020 (source: IMF World Economic Outlook, April 2016)
5
11
4044
48
90
6
13
4651 53
97
0
20
40
60
80
100
120
Finland Rwanda Uganda Kenya Tanzania Ethiopia
POPULATION Population 2015 (million)
Population 2020 (million)
230
62 61
45
25
8
271
9688
63
35
12
0
50
100
150
200
250
300
Finland Ethiopia Kenya Tanzania Uganda Rwanda
Gross Domestic Product GDP ($ billion) 2015
GDP ($ billion) 2020
4
Figure 3. GDP per Capita (source: IMF World Economic Outlook, April 2016)
Whenever talking about African middle class, it is extremely important to find out
what lies behind the definition of it. In many cases it may be something completely
different from European/Finnish middle class.
A report by the African Development Bank (ADB) estimates the size of the middle
class - those spending between $2 and $20 a day - in East Africa to be a total of
about 29 million, representing an average of 23% of the population; 45% of Kenya’s
population, 19% in Uganda, 12% in Tanzania and 8% in Rwanda (Ethiopia n/a).
However, a perhaps more relevant approach, by The Economist, is shown in Figure
5. The percentages indicate proportion of those spending $10-50 per day of the total
population (South Africa, in many aspects the most developed country in sub-
Saharan Africa as a reference, Rwanda n/a).
Talking about African middle class or consumption one has to keep in mind that
income differences between big cities and rural areas are huge. Many times country
level GDP/per capita figure doesn’t give a complete picture of people’s purchasing
power in the emerging markets as variations between the highest and lowest income
levels are huge.
42000
6871388 942 620 732
41000
18003208 2904
2003 1807
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
Finland Ethiopia Kenya Tanzania Uganda Rwanda
GDP indicators 2015
GDP per Capita (current $)
GDP per Capita (current PPP $)
5
Figure 4. Size of Middle Class (source: The Economist, October 2015)
Another important piece of background information is cost of mobile (and fixed) data
services. Data in Africa is very expensive and often priced by usage (per megabyte).
See Figure 5 below.
Figure 5. Mobile Broadband Services, price per GB a month
8 %
4 % 3 % 2 %
19 %3 %
2 %1 %
1 %
15 %
0 %
10 %
20 %
30 %
40 %
Kenya Uganda Tanzania Ethiopia South Africa
MIDDLE CLASS
Upper Middle Income ($20-50 per day)
Middle Income ($10-20 per day)
6
Political Economic Climate
As growth in Africa's petro states as well as South Africa has faded, the gains in the
economies of East Africa will increasingly attract the attention of multinational
corporations and international investors in search of new opportunities. Countries like
Ethiopia, Kenya, and Rwanda have transformed into regional powerbrokers and are
increasingly becoming key international partners for the US, the EU, and China. See
Figure 6.
Figure 6. Growth in East Africa (source: The East African, 2016)
The East African Community (EAC) is an intergovernmental organisation
composed of six countries in East Africa: Burundi, Kenya, Rwanda, South Sudan,
Tanzania, and Uganda. The EAC is a potential precursor to the establishment of the
East African Federation, a proposed federation of its members into a single sovereign
state. In 2010, the EAC launched its own common market for goods, labour, and
capital, with the goal of creating a common currency and eventually a full political
federation. Source: The East African Community
7
Ethiopia is Africa's second-most populous country after Nigeria. According to official
figures, Ethiopia grew at a rate of nearly 11% annually between 2004 and 2014.
Taking its cue from China, Ethiopia made significant investments in infrastructure and
created special industrial zones to attract foreign investment as rising wage and
production costs push low-skilled manufacturing out of Asia. The governing Ethiopian
People's Revolutionary Democratic Front also mirrors Beijing through its authoritarian
one-party rule.
Kenya is the only of the sub-Saharan African big four (Nigeria, South Africa, Angola,
Kenya) whose economic outlook for the years ahead looks robust, despite recent
challenges such as a trade deficit and rising debt. The country is East Africa’s largest
economy and boasts a prominent profile in the EAC. According to official forecasts,
growth is expected to be around 6-7% for the coming years. A statement by The
World Bank (April 2016) says Kenya has the potential to be one of Africa’s great
success stories from its growing and youthful population, a dynamic private sector, a
new constitution, and its pivotal role in East Africa.
In Rwanda the president, Paul Kagame, and the ruling Rwandan Patriotic Front
maintain a tight grip on the country's political affairs. The government has ambitious
investment and development plans but its ability to implement them will be limited by
weak domestic revenue collection and uncertain aid inflows. Nevertheless, The
Economist (2016) forecasts that real GDP growth will average at 7% a year, driven
by foreign and public investment, services and exports.
Tanzania is another African economy on the rise. Newly elected Tanzanian
President John Magufuli, commands widespread popularity as a result of his
anticorruption drive and thrifty thinking on government spending. His predecessor,
Jakaya Kikwete, oversaw a gradual reduction in poverty during the last decade,
accompanied by steady economic growth. Although Tanzania is partially reliant on
exports of commodities, it is budding construction, communication, and finance
sectors that have driven a roughly 7 % annual GDP growth over the past three years,
a pace that is predicted to continue.
In Uganda Yoweri Museveni and his NRM will maintain a firm grip on power in 2016-
20, though rising joblessness and the authorities' lacklustre commitment to
democratic reform is likely to fuel anti-government sentiment. The fiscal balance will
remain firmly in deficit owing to weak public spending controls, lower levels of aid and
high spending on infrastructure. The Economist (2016) forecasts an increase in real
GDP growth to an annual average of 5% in 2016-20, spurred by public investment
and private consumption.
8
Business Environment SWOT
This SWOT matrix below provides an investors’ viewpoint of East Africa.
Strengths Weaknesses
One of the biggest economic growths in the world
Market of over 250 million people
Long term growth creates predictability
Strong EAC vision for the future
Foundation exists for diversification of economies
Large, relatively skilled population
Investments in infrastructure
Economic growth not dependent commodities
Growing middle class
English as official language
Legislation and education based in European values
With right resources and networks things can move forward relatively quickly
Real success in disruptive businesses (mobile banking) breed other sustainable success stories
Large scale corruption
Poor infrastructure
Stability still vague
Unpredictable growth in different industries
Many markets are based on monopolies – lack of competition is a clear bottleneck to enter markets (except Kenya)
Markets are scattered and controlled by many different cliques that need to be understood
Tribalism in politics
General inefficiency makes things slow
Inadequate infrastructure (makes things slow)
Economies still very small
Poor general quality of education, lack of skills
Low productivity and competitiveness
Economies remain very dependent on rain-fed agriculture
Dependence on non-value-added products, remittances, aid, and tourism in terms of currency inflows
Opportunities Threats
EAC creates stability and single markets in real terms
Committed coalition of Kenya, Uganda and Rwanda fast track in EAC integration
Market situation needs to be read and understood properly
Decentralisation of power makes entering the market more easier
New digital services provide new possibilities to market entry with relatively low risks
With right investment and development horizon (5-10 years), investments have huge potential to materialise
With right mind set (understanding the role of relationships and potential slow processes), risks are under control
Manufacturing sector develops and leads to growth of real middle class
Urbanization
Young population
As other parts of Africa are struggling with growth, East Africa becomes over-hyped
Security and general unrest becomes even a bigger issue (elections in Kenya 2017)
Political elite can’t solve social and economic problems that become bottle necks for growth
In certain sectors risk of economic bubble (construction etc.)
Poor governance, red tape and corruption
No improvement in education, brain-drain continues
Despite of strong visions, execution fails
Ease of doing business remains low
9
Healthcare Facts
Healthcare is one of the selected three focus areas of this report.
Healthcare in the East African countries comprises hospitals at district, provincial and
national levels and healthcare centres / dispensaries at lower levels. Similar services
are also provided by non-governmental organisations and the private sector.
Health system strengthening has become a priority in all East African countries
according to East African Community (2016). Investment opportunities include the
following:
establishment of hospitals and other health units
establishment of modern testing facilities
training of medical personnel in specialised medical care
manufacture of drugs, hospital equipment and furniture
provision of family planning facilities and services
Following table describers total health expenditure by country (Finland as a
reference) as the sum of public and private health expenditure in 2014. It covers the
provision of health services (preventive and curative), family planning activities,
nutrition activities, and emergency aid designated for health. Source: The World
Bank, 2016
Finland Ethiopia Kenya Rwanda Tanzania Uganda
Total expenditure on health per capita ($, 2014)
4612 27 78 52 52 52
Total expenditure on health as % of GDP (2014)
9.7 4.9 5.7 7.5 5.6 7.2
Ethiopia’s health system is composed of public sector and private sector. Public
system has three levels. First level is district health system comprising a primary
hospital (60.000-100.000 people) and health centres (15.000-25.000 people) and
their satellite health posts (3000-5000 people). Second level is general hospital level
(1-1.5 million people) and third level specialized hospital level (3.5-5 million people).
Private healthcare and NGOs play big a role with about 40 % share. Lately the
system has changed from a centralized to a more decentralized model. Source:
Wikipedia
Kenya’s health system is composed of services delivered by public sector with major
players being Ministry of Health and parastatal organisations and private sector with
major players being private for-profit organisations, NGOs. There are about 5000
health facilities, with the public sector accounting half of them. Public health system
consists of national referral hospitals, provincial general hospitals, district hospitals,
health centres and dispensaries. Both national referral and provincial hospitals have
equivalent private referral hospitals. There are two national referral hospitals:
Kenyatta National Hospital and Moi Referral and Teaching Hospital. Provincial level
acts as an intermediary between the national and district level. Private sector
provides 30-40% of hospital beds in Kenya. It is estimated that 15% of health system
funding comes from donor sources. Sources: Wikipedia, WHO, Smart Global Health
10
Kenya has some state of the art private hospitals like Aga Khan hospital in Nairobi
and is destination of “health tourism” in the region.
Rwanda’s health system is decentralized and multi-tiered system where services are
delivered by public and private sector. Rwanda’s health system consists of 440
health centers, 34 health posts (mainly involved in outpatient programs) and 48
district hospitals. Additionally there are four national referral hospitals. Rwanda’s
healthcare system has seen great improvements during the last years and is
considered as one the most advanced in whole Africa. Health system is financed
both by state funds and by individual contributions through health insurance.
Sources: Wikipedia, Government of Rwanda
Tanzania’s health system is divided into six public sector levels, combined with
private sector services. First level is village health services that provide preventive
services which can be offered in homes. Usually village health services have two
health workers. Dispensary services are the second level and these services cater for
between 6,000-10,000 people. This level also supervises first level services. Health
centre is the third level catering 50,000 people. District hospitals are the fourth level.
Regional hospitals are the fifth level offering similar services to district hospitals but
with more specialized services. Sixth and highest level of healthcare system is
referral/consultant hospitals. Currently there are four referral hospitals. Source:
Wikipedia, Ministry of Health, WHO
Uganda’s health system is composed of services delivered by public sector, private
service providers and traditional individual practioners. Uganda has a decentralized
health system divided between national and district levels. At the national level are
the national referral hospitals, regional referrals hospitals and semi-autonomous
institutions e.g. Uganda Blood Transfusion Services. At the district level lowest rung
are Village Health Teams (VHT’s) that are based on volunteer community health
workers and targeted to communities of 1,000 people. The next level is health
centers, run by a nurse. This level is intended to serve communities of 5,000 people.
Next level is more advanced health centers that are intended to serve communities of
more than 10,000 people and run by clinical officer. Above this level is health center
that is run by medical doctor and is capable of providing surgical services. Source:
Wikipedia
Innovation Ecosystem
There are hundreds, if not thousands of different stakeholders in the East Africa
healthcare innovation ecosystem. The ones listed in Figure 7 are merely examples.
An excellent source of information (as of May 2016) is a site called eHealth News
Africa where one can source news, organisations, initiatives, and people within the
area of eHealth.
11
Figure 7. Healthcare Innovation Ecosystem
Cases
If there are many stakeholders in the innovation ecosystem, there are hundreds or
thousands of innovative projects, startups, programmes and companies trying to
solve the eternal challenge of dysfunctional African healthcare. Figure 8 illustrates
four very different cases:
1. M-Tiba
2. We Care Solar
3. Her Health BVKit
4. ZiDi
M-Tiba is backed by Safaricom (who owns the famous mobile payment platform M-
Pesa) and several big-name donors.
Headquartered in California, We Care Solar initially assembled Solar Suitcases for
midwives in northern Nigerian maternal health clinics. Approximately 1,500 Solar
Suitcases have been assembled and sent to 27 countries around the world, including
Uganda, Tanzania and Ethiopia. The suitcases are assembled in California. In 2015
We Care Solar won $1 million UN Energy Grant to scale up.
Her Health BVKit was developed in Uganda by a group of five female college
students who call themselves the Code Gurus. They are currently raising funds via
crowdfunding and will be featured at Women Deliver 2016 Conference in
Copenhagen (May 2016).
ZiDi was developed by a Kenyan company Microclinic Technologies with technical
support from Microsoft under the 4Afrika initiative and has won several awards.
12
Figure 8. Healthcare Innovation Cases
Learnings
Kenya’s public sector plays an unusually small role in healthcare, accounting for only
one-third of total health expenditure while donors and other external resources share
is almost 40% (2010). Private health expenditure will outpace the public sector and,
by 2025, could account for 75% of total health expenditure. Annual health
expenditure in Kenya is estimated to reach US $4 billion, with private spending
ranging from US$2.6 billion to 3.1 billion by 2025. Source: Open Capital Advisors,
2013. Similar trend could be expected in other East African countries, too.
Key learnings include:
Even the poorest consumers can and do spend on private health care.
There is a growing role for market-based solutions that provide better
medical outcomes.
Success requires solutions that are innovative, capital intensive, low-cost,
and high-volume.
For investors, due diligence and proper understanding of the healthcare
environment are keys to evaluating the potential financial returns and social
impact of each initiative.
For entrepreneurs, clear strategy and excellent operations to ensure quality
in service delivery and tight cost control.
Payback periods will likely be long, demand is enormous and all parts of the
industry remain underserved.
For many medical practitioners, securing investment capital to purchase
medical equipment is an ongoing challenge. Financial institutions are often
reluctant to lend to doctors, especially those who operate as small to medium
enterprises (SMEs). Recognising this challenge, GE Africa, Kenya
13
Commercial Bank and USAID developed a tailored financing programme for
the SME health sector in Kenya. Through the Open Health Financing
Programme, SMEs are able to apply for up to $10 million to facilitate the
development of doctor partnerships, diagnostic centres and small hospitals.
As regulative environment in (East) Africa is in many aspects more relaxed
than in the Western countries (including Finland), this could provide an
opportunity to test new innovative ideas/products/solutions.
14
Energy Facts
Energy is one of the selected three focus areas of this report.
In most countries of East Africa more than 90 % of the population are reliant on
biomass as electricity access rates range from 12 % in Uganda (more than 27 million
people without access), 14 % in Tanzania (nearly 38 million without access), 18 % in
Kenya (more than 32 million without access) and 23 % in Ethiopia (nearly 64.5 million
without access). Source: United Nations, 2014
Though there are numerous challenges in the energy sector, there are also abundant
opportunities. There are significant clean energy resources and development
potentials in transboundary hydropower systems. Though energy trade is barely
leveraged, possibilities exist for private sector participation and capital infusion.
Discovery of oil and gas, and growing interest in biofuel development, as well as
solar energy, also offer pathways to dealing with energy bottlenecks.
Even though large-scale infrastructure projects are a key priority in all East African
countries, there is going to be a need for decentralized renewable power generation
distributed through mini-grids and micro-grids, instead of traditional grid-connected
generation. Mini-grids will typically deliver electricity produced at a centralised point
through solar, wind, hydro or biomass gasification.
The generation of electricity in East Africa is predominantly hydroelectricity. Following
table describes electricity production in East African countries (Finland as a
reference). Source: IEA, 2013
Finland Ethiopia Kenya Tanzania Uganda * Rwanda **
Coal 14371 - - - n/a n/a
Oil 234 8 2726 1222 n/a n/a
Gas 6788 - - 2599 n/a n/a
Biofuels 11597 - 179 21 n/a n/a
Waste 735 - - - n/a n/a
Nuclear 23606 - - - n/a n/a
Hydro 12838 8338 3945 1717 n/a n/a
Geothermal - 17 2007 - n/a n/a
Solar 6 - 1 15 n/a n/a
Wind 774 356 18 - n/a n/a
Total 70949 8719 8876 5574 2493 400
*2011 **2015 (estimate)
Innovation Ecosystem
As having electricity is a key prerequisite for development in more or less every
aspect, there are hundreds of different stakeholders in the East Africa energy
innovation ecosystem. In grid-connected projects and innovations national power
utilities as well as other authorities play a central role. The ones listed in Figure 9 are
merely examples.
15
Figure 9. Innovation Ecosystem
Cases
If there are many stakeholders in the East African energy innovation ecosystem,
there are hundreds or thousands of innovative projects, startups, programmes and
companies trying to solve the energy crisis in (East) Africa.
Figure 10 illustrates four very different cases:
1. M-KOPA
2. Powerhive
3. Strauss Energy
4. Valoe
M-KOPA, pay-as-you-go solar-energy service launched in Kenya in 2012, has
connected more than 330,000 homes in Kenya, Tanzania and Uganda.
Powerhive, with headquarters in Berkeley, California, has operated rural microgrids in
Kenya since 2012. In late 2015 Powerhive received an US$11 million equity
investment from Enel Green Power to build mini-grids in 100 villages in Kenya.
Established in 2007, Strauss Energy is a local firm comprising accomplished and
enterprising innovators in the fields of engineering, energy and construction. They
provide renewable and cost-effective energy through BIPV technology, a
revolutionary solar-powered roofing tile designed and made in Kenya, tested and
approved by the Kenya Bureau of Standards.
PowerGen Renewable Energy is a micro-grid developer, implementer, and operator
in East Africa. So far, PowerGen is generating $10,000 in monthly revenue and has 9
micro-grids up and running in Kenya.
16
Valoe Corporation from Finland has announced a $17m order for a solar module
manufacturing plant, part funded by the Development Bank of Ethiopia. Some of the
sale price will be paid in cash, while Valoe will take a 30% share in the Ethiopian
manufacturing partner to cover the balance. According to Valoe the plant was
expected to be delivered to Ethiopia later in 2016.
Figure 10. Energy Innovation Cases
Learnings
Key learnings from energy sector include:
Four markets: central grids, mini and micro grids (villages, small businesses),
off-grid A (rural poor household), off-grid B (energy independence/security
seekers).
Energy/electricity plays a crucial role in development of all sectors
(healthcare, education, agriculture).
The economic feasibility of electricity provision to customers is a key
consideration in developing replicable models for mini-grids. Look for anchor-
users.
Community-based micro-grids, such as those developed by
Energy4Development in, provide connections to community infrastructure
including maternal clinics and schools. Through companies such as Devergy
in Tanzania, off-grid customers have access to light, mobile charging etc.
Source: GVEP International
Companies such as PowerGen Renewable Energy in Kenya install micro-
grids that allow customers to make upfront payments for energy consumption
via mobile money, and through GSM metering technology the operator is
able to switch off energy supply for non-payment. These technologies are
allowing companies to build scalable models. Source: GVEP International
17
Digital Facts
Digital is one of the selected three focus areas of this report.
The country specific descriptions are based on a report published by IST-Africa in
2016, except for Rwanda. In general, IST-Africa is a good and relatively up-to-date
source for information concerning government lead ICT projects.
Ethiopia is one of the fastest growing non-oil economies in Africa but is heavily
dependent on agriculture. In line with its ambition to become a middle-income
country by 2025, Ethiopia views its ICT Policy and Strategy as integral to the
country’s larger development goals. The National Science, Technology and
Innovation (STI) Policy aims to create a technology transfer framework to build
national capacity. In terms of ICT infrastructure, there is 12,000 km optic fibre cable
radiating from central Ethiopia across the country and connecting all cities, with the
capacity to transmit 40 Gbps along with the national backbone. To date, MCIT has
established 230 Community Information Centres and 9 community radio stations
across the country to provide information on new ICT technology transfer and
implementations, healthcare, agricultural information and education issues.
Kenya recognises the importance of ICT and Innovation in achieving the Vision 2030
objectives. There are five key policy documents guiding the ICT and Science,
Technology and Innovation (STI) sector in Kenya: Kenya ICT Policy 2006 (under
review), eGovernment Strategy, Kenya ICT National Master Plan 2017, the National
Broadband Strategy and Kenya Science, Technology and Innovation (STI) Policy
2012. In terms of ICT infrastructure, a national fibre optic infrastructure is in place and
four submarine cables are online (TEAMS, SEACOM, EASSy, LION).
Tanzania recognises the importance of ICT and Innovation to support socio-
economic development as part of the realisation of Development Vision 2025. The
updated Science Technology and Innovation (STI) Policy has been reviewed and is
awaiting Cabinet approval. The digital infrastructure in Tanzania has improved
significantly with the fibre-optic network, investment in local Internet Exchange
Points, migration to IPv6 and construction of the National ICT Backbone (NICTBB).
The eGovernment Strategy was put in place in September 2012.
Uganda's ICT sector is one of the country’s most vibrant, fastest growing sectors
since market liberalization in 2010, based on a good ICT legal and regulatory
framework, Science Technology and Innovation Policy 2009, ICT Policy 2003, which
is under review, Rural Communications Development Policy and eGovernment
Strategy 2011). ICT Infrastructure is continuously improving with access to three
submarine cables, the National Data Transmission Backbone Infrastructure (NBI)
and Electronic Government Infrastructure (EGI).
Rwanda has an ambitious Smart Rwanda Master Plan (2015-2020): Powering
Rwanda’s socio-economic transformation towards a knowledge economy, via
innovative, information-driven, ICT–enabled solutions. Key messages are:
24-hour government – all govt. services will be online by 2018
Cashless and paperless govt. - all govt. financial transactions will be made
electronically and via mobile by 2018
18
US$1bn+ value of opportunities for the private sector - Through PPP, this is
the value of projects to be implemented by SMART Rwanda 2015-2020
US$50m saved through efficiency gains - savings through outsourcing and
reduction of wage bill by reducing number of GoR ICT staff
SMART Rwanda to contribute 10% to GDP - Broadband access offers
platform for economic takeoff
70,000 jobs to be created by SRMP
Innovation Ecosystem
There are hundreds (if not thousands) of different stakeholders in the East Africa
digital innovation ecosystem, especially in the NGOs, funders and initiatives
category. This is largely due to a paradigm shift in international aid programs from
traditional aid to support for local entrepreneurship programs and digital solutions
with focus on agriculture, health and education.
The stakeholders listed in Figure 11 are merely examples. ”Digital” (or ICT as it
sometimes has been labelled) as a category is different from Energy and Health in
the sense that it is a horizontal area crossing over all other categories. Therefore, in
East African context, it may make more sense to talk about concrete sectors, such as
agriculture, healthcare and energy, rather than somewhat abstract areas. The only
exception to this is when referring to infrastructure or eGovernment.
Figure 11. Digital Innovation Ecosystem
Cases
If there are many stakeholders in the East African digital innovation ecosystem, there
are hundreds or thousands of innovative projects, startups, programmes and
companies trying to use ICT for development (and business) in (East) Africa.
19
Figure 12 illustrates four cases:
1. M-Pesa
2. Totohealth
3. Eneza Education
4. Illuminum Greenhouse
M-Pesa (M for mobile, pesa is Swahili for money) is a mobile money transfer, financing and microfinancing service, launched in 2007 and owned by Safaricom. It has since expanded from Kenya to Tanzania, Afghanistan, South Africa (from where it decided to withdraw in May 2016), India, Romania and Albania. Totohealth, launched in 2014 and partly funded from Finland has been looking for opportunities to expand to Democratic Republic of Congo, Nigeria, Uganda and Zimbabwe. As the service is cost free, it is likely to remain as a NGO service. Founded in 2011 as MPrep, Eneza is a for-profit, social enterprise based in Nairobi, Kenya with a team of 15 full-time staff and 40 contracted master teachers. Eneza has received funding from both private equities and prizes/awards. It is currently looking for $1.5 million additional funding.
Figure 12. Digital Innovation Cases
Learnings
Success factors in the field of digital solutions include:
Value, necessity, individual benefit
Simplicity even when things are complex (simplexity)
Clearly stated business outcomes is what sells and is key to success
Recognition of local needs, values and hierarchies both at organisational and
individual level
Solutions for a sector specific need, with a fintech link (with physical products
also a link to logistics needed)
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Future Scenarios 2020
What the East African future looks like from business perspective depends a lot on
two factors: degree of diversification of the economies (i.e. employment
opportunities) and degree of economic freedom (i.e. independency from foreign aid
and other economical restrictions to develop economies on its own).
Figure 13 below illustrates four possible futures. Each of these futures require a
different strategy as the potential customers are quite different depending on which of
the scenarios, or combination of, comes true. It is possible to successfully do
business regardless the future. However, most suitable business environment for
Western/Finnish companies prevails when high diversification and independency
exist. Most demanding business environment exist when diversification of economy is
low and economies are economically restricted and dependent on foreign aid.
Figure 13. East African Scenarios 2021 (business point of view)
Table below lists main characteristics for each of the scenarios.
Scenario Characteristics
Made in East Africa
“Africa for Africans by Africans”, “Restoring African Pride”.
Diversified three-tier economies with three labour intensive backbones: commercial agriculture, manufacturing for exports, and hospitality services.
Share of capital owned by the locals is increasing.
First East African tech unicorns.
Foreign aid has decreased but is still needed. Objectives and means are decided by donors and governments jointly (Rwanda model).
Pan-African trade increases.
?
Increasingly authoritarian leaders/governments who suck all the money available yet deliver little results.
Governments in principal terms want to take destiny in their own hands but their lack of skills and resources, combined with mixed personal and public interests, as well as pride of “African way solving African
21
problems”.
Failed state outcomes possible.
Someone’s Food & Factory
One or a few foreign countries grab East Africa under their control by providing infrastructure against land and cheap labour for foreign companies.
Economies become more diversified but capital is owned by foreigners and Africans merely serve a purpose as cheap labour.
Role as a food and raw material provider for the West and the East.
Capital hands in hands of few, political elite and expat communities thrive.
Save Africa
Foreign aid, alongside raw materials, is the main source of income as diversification, and thus job opportunities, remain low.
Foreign influence remains strong and economies struggle to find their own path to success.
Corruption and government inefficiencies are major bottlenecks for development.
Business Models
The most suitable business model for a company wanting to do business in East
Africa depends to a degree which of the scenarios one sees most likely.
Figure 14. Business Models for Different Scenarios
As the future reality is likely to be a mixture of all four scenarios, a successful
business model also takes the following into account:
doing business in East African countries is not for short-termists
building the local connections and talent regardless the customer is
essential
prepare building all-in business models , do not rely on external services as
they do not exist or are very expensive
investing only as much as one can, should the worst case scenario come
true, lose
Africans dislike lecturing
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Conclusions
Demand in East African countries still is and is estimated to be for the next five years,
to a large degree, driven by two factors:
1) infrastructure projects
2) consumer goods and services
Absence of significant business-to-business market can be explained by
a) role of State Owned Enterprises (SOEs) in infrastructure projects in which
donor funding often plays a role and ties purchases to companies from
funding countries
b) limited number of SMEs combined with lack of locally owned enterprises
leading to purchasing decisions made outside the East African countries (i.e
in foreign HQs)
c) NGOs acting on behalf of enterprises
There is no doubt of demand for more or less everything in East Africa. The
countries, both from public (governments) and private (NGOs, companies,
consumers) perspective, are open for new innovative solutions and new partners.
However, the big question WHO PAYS still remains. Additionally, a lot depends on
the time span. East Africa is not an exception in the African context with very little
room for opportunistic, short term approach.
Figure 15 below summarizes key factors for finding a suitable approach to East
African markets, depending on a) target group and b) time span.
Figure 15. Factors for finding a suitable approach to East African markets –
target group vs. time span
Regardless the target market or the product offered, the following factors must be
taken into account when approaching the East African markets:
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No such markets as cleantech, environment or digitalization as all these only
play a (marginal) role with businesses partly or wholly funded by the West.
In general, locals like luxury.
“Green” or “Environmentally Friendly” is not a very good sales argument
(unless project funded by the West).
“Innovation” is almost as useless (unless project funded by the West).
People want a better future all over the world. Especially for their children.
Even in Africa.
Job creation will be the key to long term success. As quality of education is
low, companies must invest in training their employees. Sometimes from the
very basics.
Many want to win (future of) East Africa now. Competition is tough.
In case the potential customer base consists of governmental organisations,
including state owned enterprises, the key factors that need to be taken into account
in the short to medium term (0-5 years) include:
Generally speaking, these people like luxury. Make an impression by wearing
expensive suites, drive an expensive car, show family photos taken in a
luxury resort.
Sell a package: do-good (for the people), be-easy (the solution), show-
recognition (for the individuals).
Know the name of the game, don’t be easy-to-fool (an example: “for
Scandinavians you sell female empowerment in order to get money”).
In case the potential customer base consists of local companies, the key factors that
need to be taken into account in the short to medium term (0-5 years) include:
There are very little potential customers at the moment.
Partnership is the way to go forward. True partnership, not just sales
partnership. Consider investing in a plant (if in manufacturing) or form a joint-
venture (services).
Finding right partners will take time. There is a lot of talk, yet often little
action. There is no deal before you have the money.
In case the potential customer base consists of consumers, the key factors that need
to be taken into account in the short to medium term (0-5 years) include:
Most consumers simply have very little money, yet they want to invest what
they can in food (other than necessary) and beverage, entertainment,
education and healthcare. “What they can” is very little, often under $1 per
week.
Quality is not generally appreciated, yet brand and show-off value are.
Culture of maintenance is still developing, no room for high-maintenance
products.
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Information
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