Can Outsourcing, IT Leapfrog Poor African Infrastructure?

Can Outsourcing, IT Leapfrog Poor African Infrastructure?

Poor road infrastructure, rising middle class and fast-growing mobile are creating a vibrant market for business process outsourcing firms in Africa.

Sudanese billionaire Mo Ibrahim recently invested $25 million in an Indian-based business process outsourcing firm, Ison BPO.

The deal gave Satya Capital, a fund associated with Ibrahim, access to Western, Southern and Eastern African markets which are increasingly using business process outsourcing firms.

The company is the third-largest business process outsourcing firm in Africa and has a footprint in Nigeria, Niger, Chad, Sierra Leone, Burkina Faso, Kenya, Tanzania, Uganda, Rwanda and Madagascar.

Ison CEO Ramesh Awtaney told Kenya’s “Business Daily” in an interview that the firm has 3,800 employees on its payroll and plans to increase this to 40,000 in the next five years.

What would make an Indian company set up shop in Africa, when India is a larger market that is already well developed?

Awtaney says that the low level of road infrastructure, rising middle class and greater access to mobile devices are all collaborating to create a vibrant market for business process outsourcing firms in Africa.

Business process outsourcing is typically categorized as back office outsourcing – which includes internal business functions such as human resources or finance and accounting – and front office outsourcing – which includes customer-related services such as contact center services.

First, the road network is poor in most parts of the continent. Global consultancy PwC released an infrastructure report this month.

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“The majority of the continent’s roads are still unpaved and many paved roads are in poor condition. Quality tends to deteriorate significantly once you leave international trunk roads,” said the survey, entitled “Africa gearing Up: Future prospects in Africa for the transportation & logistics industry.”

More Africans own cars today than two decades ago but road network have not expanded over time and Awtaney said that this was an opportunity.

Shoppers would rather buy goods online and have them delivered at their doorsteps to avoid the traffic and the tedious navigating when looking for parking. This is where business process outsourcing firms like Spanco come in. They are creating the IT infrastructure that will allow shoppers to do online transactions.

“While various countries in Africa, like Kenya, continue to improve their Internet connection through laying of fiber cables, they are moving in the right direction. However, there’s more to business process outsourcing firm than just Internet,” Albanus Mulandi, IT Manager at Zetech College in Nairobi, told AFKInsider.

“Beyond English and basic computer skills, there are other skills that are demanded of business process outsourcing firm workers and that’s perhaps where Africa may fall short when pitted against competitors,” Mulandi said. “Does Africa have a large pool of tech-based skilled workers? Coders and software engineers for instance?”

Ison is a Nairobi-based business process outsourcing firm in 10 countries in Africa and India with 6000 employees.

Ison has struck a deal with Nakumatt, the largest supermarket chain in East and Central Africa, to operate its retail outlets. Partnerships with banks, airlines and other large firms are in the offing.

Secondly, there is a rise in the African middle class. Commodity booms are creating pockets of wealth in oil-producing Nigeria, Ghana, Angola and Equatorial Guinea, and mineral-rich Zambia and South Africa.

The last decade’s rise in global commodity prices catapulted many Africans into the middle-income category.

“But from 2001 to 2010, six of the world’s 10 fastest-growing economies were in Sub-Saharan Africa. That’s partly due to natural resources; top-ranking Angola and fourth-ranking Nigeria have both benefited significantly from oil exports,” according to the PwC report.

Higher incomes are giving more Africans access to banking services and as competition heats up, quality will be a competitive advantage.

Banks are beginning to outsource functions such as customer care and while social media sites such as Facebook were seen as a distraction a few years ago, no institution worth its salt can afford not to have a fan page.

Local players, however, say that while there is a future, Africa still has a long way to go before it can catch up to India or Singapore.

“I think that for simpler processes like call-support centers, African countries like Kenya which have invested in telecommunication infrastructure, we become increasingly attractive business process outsourcing firm centers relative to India,” said Mark Mwaura, head of Olivine Technology, an IT company that makes apps.

“However, India has invested heavily over decades in their education system, particularly in sciences, and in the manufacturing and software industries. For these types of high-skill and knowledge-intensive industries, African countries will not be competitive in business process outsourcing space in the foreseeable future,” added Mwaura.

But African governments have woken up to the challenge and are beginning to invest in IT.

Rwanda, for instance, has a policy of giving school kids access to laptops and Kenya is in the process of adopting a similar policy. Kenya is also investing in Konza City, Africa’s Silicon Savannah, a $7 billion city that is expected to host major IT companies.