Welcome to ‘Silicon Savannah’
WHY YOU SHOULD CARE
Because Kenya is emerging as the next big tech hub.
By Courtney Fingar
With two months still to go, 2019 is shaping up to be a blockbuster year for inward investment in Kenya.
So far this year, the country has attracted 54 projects totaling $2.9 billion in announced investments, according to fDi Markets, a Financial Times data service that tracks greenfield cross-border investment.
This growth reflects a general rise across Africa in greenfield foreign direct investment (FDI) — new physical facilities of foreign companies.
Kenya is benefiting more than most of its neighbors because of its relative success in attracting IT investment, which has sparked the nickname “Silicon Savannah.”
Kenya as an investment destination has huge potential.
Jonty van Zeller, director, Alamaya
The country is the second most innovative in sub-Saharan Africa, behind South Africa and ahead of Mauritius, according to the World Intellectual Property Organization’s Global Innovation Index 2019.
The arrival of fiber optics in 2009–10 set the wheels in motion for the first major wave of information and communication technologies investment, which, if not massive in global terms, is significant for Kenya.
Some 63 foreign companies have made greenfield investments in the country in the software and IT sector since 2009, according to fDi Markets. Last spring Microsoft opened an Africa development center and Cisco, a supplier of networking equipment, set up an innovation hub. Both ventures are in Nairobi. Standard Chartered Bank also opened an innovation lab in its head office in the capital.
There are many strengths behind Kenya’s growing ICT cluster. Kenya ranked first overall in a benchmarking study of five East African countries for their attractiveness for a hypothetical informatics research and development center. And, though the country came in last for cost-effectiveness, its quality score was far ahead of the competition: 181.22, double that of Uganda, the second-ranked location.
The score is based on fDi Benchmark, an online tool that uses independent data points to measure investment attractiveness. Factors considered include the availability of labor and skills, the size of the existing industry clusters, infrastructure and accessibility, business environment and quality of living.
As a headquarters location for Pan-African business, Kenya faces tougher competition. When placed in a group that includes Ghana, Ethiopia, Nigeria, Rwanda, South Africa, Tanzania and Uganda, again using fDi Benchmark, Kenya ranked fourth in quality and sixth in cost-effectiveness.
Within its immediate region of East Africa, however, it remained highly competitive.
Abbott Laboratories, a U.S. health care group, has opened an office at the Watermark business park in Nairobi that will act as the company’s East African headquarters and is intended to support growth opportunities locally and in East Africa. This investment follows this summer’s opening of an African headquarters of Cigna, a U.S. health service company, that will accommodate more than 80 employees.
The current boom in foreign investment will need to be sustained if Kenya is to climb the ranking of global investment destinations.
Despite the recent rise, Kenya’s FDI levels are still low relative to gross domestic product and level of development. In the Greenfield FDI Performance index 2019, which measures how much foreign direct investment countries receive compared to the size of their economies, Kenya was 29th globally and fifth in Africa.
There are expectations that the development of public-private partnerships can boost FDI inflows, and the government has targeted a number of reforms and legislative changes to improve the business environment. These are detailed in Kenya Vision 2030, the country’s program of development designed to run from 2008 to 2030.
Kenya ranks 61st in the World Bank’s Doing Business 2019 index, having jumped 19 places from the previous year.
With an overall score of 70.31, Kenya fares better than the regional average of 51.61, but lags far behind the likes of Rwanda (ranked at 29) and Mauritius (ranked at 20). On the individual metric of starting a business, Kenya is ranked an abysmal 126th globally.
“Kenya as an investment destination has huge potential,” says Jonty van Zeller, director of Alamaya, a regional business coordinator for East Africa. But, in common with many other emerging markets, van Zeller says foreign investors considering investments in the country need to employ “local knowledge and local experience” to overcome barriers to doing business.
A recent review from the United Nations Conference on Trade and Development highlighted Kenya’s advantages for investors, which include its geographic position as a regional economic hub, its growing entrepreneurial middle-class and its expanding services sector.
“Nevertheless, numerous obstacles to investment persist, notably the country’s poor-quality infrastructure, skills shortages, instability related to terrorist risk and political, social and ethnic divisions, ineffective rule of law and corruption,” the report warns.
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