In Search of ‘Next Bill Gates’: Tech Giants Invest Heavily in Kenya

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Written by Frank Mutulu

Cargo pant-wearing techies banging away on MacBooks and their furious clicking, only interjected by sips of freshly brewed lattes, are now common sights in Nairobi’s swanky cafes.

American and European tech companies, in addition to setting up office in Nairobi, are buying out or buying into well-run local tech firms. Most realize Kenya’s potential and intend to be part of the “next big thing.”

The Internet cafes and research labs popping up around Nairobi are frequently patronized by foreigners streaming in to chart the path to a Silicon Savannah, Kenya’s version of Silicon Valley.

In the last few years American and European firms have been investing heavily, sponsoring university labs and research hubs in the hope that they will find Africa’s Bill Gates and Steve Jobs.

By accident or design, the timing is perfect for these companies since they have the advantage of experience and are coming to a market dominated by a young population that is tech savvy and a government that is investing heavily in this sector.

Mark Mwaura is the co-founder of Olivine Technology, a Kenyan-based IT firm that is the 2013 winner of the Google Innovation Awards. He says that the foreign companies have a wealth of experience courtesy of the 90s dotcom era — and this enables them to identify good buys.

“Their experience equips them with greater predictive capabilities to spot ICT trends and to better evaluate the risk return of prospective investments in start-ups,” Mwaura told AFKInsider.

Nokia, Google, IBM, OLX and other international IT firms which have all set up regional offices in Nairobi in the last few years are hunting to buy out or sponsor research labs, betting that this is where “the next big thing” will come from.

Still, there are challenges to be overcome.

Internet penetration in Kenya is between 25 to 41 percent. Government agencies put the number at 41.1 percent but World Internet Statistics puts penetration at 25 percent. Both agree on one thing — growth has been exponential over the last decade.

At the turn of the 21st century the number of Internet users stood at 200,000. By the end of 2012, users had increased to 16 million or two out of five Kenyans, most of whom are accessing the Internet via smart phones.

Kenyan IT start-ups have begun targeting this group and international firms have followed suit.

Online sales are increasing despite the challenges of Kenya not having a well-developed payment system that allows for reversals and a lack of delivery mechanism, since the country is not well-connected by the decrepit state-owned postal system.

A reprieve has been the M-Pesa mobile money transfer service that has acted as a tolerable substitute for an online payment system. Delivery still poses a major headache but these are small bumps entrepreneurs are overriding.

Kenya has Zetu Deals and Rupu, copies of Groupon, the U.S.-based e-commerce firm that sells goods and services at discounted rates.

The two local firsts have grown to the point of attracting foreign investment.

Ringier, Switzerland’s largest international media company, bought Rupu and Pigiame, the local versions of Groupon and Craigslist respectively in 2012.

Despite being a copy of Groupon, Rupu has been named one of the top 20 tech startups in Africa by Forbes.

OLX, similar to Craigslist, has been advertising heavily on local TV and radio channels on prime time in an obviously well-oiled campaign meant to muscle out local incumbents such as Pigiame and the trend should continue.

“It is therefore not surprising to observe that most if not all of the pioneering ICT hubs and ICT venture capital firms in Kenya are backed by foreign investors,” Mwaura said.

Olivine’s application for distributors has caught Google’s attention and is now being used as a case study on local solutions to local problems by locals.

Pundits say that buying out local companies will benefit entrepreneurs who struggle to find a good price for their companies whenever they want to sell a part or the entire company. And again, the dotcom era experience comes to play.

David Karanja founded Crane Consulting House, a Nairobi-based research firm.

“These are among the first tech companies being acquired in Kenya by foreigners and that is setting a good precedent,”  Karanja told AFKInsider. “Local business owners need viable exit strategies and IPOs and private placements have been out of reach for many small companies.”

The government is taking note that it is entrepreneurs who are better placed at creating jobs and have shown serious commitment to the sector.

Technocrats have come up with the region’s biggest IT investment that is expected to build a new city. The government and private companies are investing heavily in Kenya’s ICT sector. The most ambitious plan is the $7 billion Konza Technology City to be located in Machakos County, south of Nairobi.

The public-private partnership will house technology companies, residential development, a central business district and a university all spread over 5,000 acres.

HR & A Advisors, a New York-based real estate, economic development and energy efficiency consultant, was appointed in 2012 to oversee the $7 billion development plan which has attracted interest from American, Korean and Chinese firms.

While they wait for Konza City, entrepreneurs want the basics such as reliable power first fixed.