Wednesday
October 27
2010

Michel Bezy

The New Nomads and Cloud Computing in Africa

The Nomads of the Sahara are called the “children of the clouds” and in Africa, clouds announce the rain that brings hope. A new type of cloud is bringing hope for the next generation of African innovators and unleashing their creativity: Cloud computing.

Emerging information technology will be the key enabler for the rapid development of the private sector. Cloud computing is Internet-based computing, when computing tasks are assigned to a combination of remote connections, software and services on demand. End-users no longer need expertise in, or control of the technology infrastructure “in the cloud,” and this is why there’s renewed optimism in the clouds over Africa.

Looking back over the last decade, IT has played a key role in the private sector’s productivity improvements in industrialized countries by automating innumerable business processes, such as accounting, human resources, and customer relationship management (CRM). In turn, this automation has increased efficiency and triggered high growth in industries ranging from investment banking to farming, and revolutionized small and medium enterprises (SMEs), which make up 90% of enterprises globally and account for 50-60% of all employment.

In contrast, sub-Saharan Africa (SSA) small firms have not fully benefitted from the technology revolution because of the expensive upfront costs of buying hardware and software, and managing it on-premise. But more importantly, the lack of an IT skilled workforce prevented the development of supporting ecosystems of service providers, similar to those available in the industrialized world. Additionally, the Internet was generally not available, and when it was, the cost was high, speeds were slow, and access was unreliable and, therefore, not practical to the majority of SSA firms for managing their businesses.

But along with increased focus on infrastructure and in the private sector as a driver of development over the last ten years, sub-Saharan Africans have made major investments in the ICT landscape. The region presents a large, growing market that is increasingly connected via mobile technology and broadband connectivity. Africa has the fastest growth rate in mobile phones among all continents, with penetration soaring from 2% at the turn of the century to an estimated 50% plus by the end of 2010. This is critical, as a lack of effective communications infrastructure has traditionally been one of the biggest obstacles to economic growth.

(Above: Fiber optic cable is installed in in Rwanda)

At the same time, Africa is getting increased broadband access to the Internet. This year alone, three major broadband ocean cables have been connected (EASSy, GLO-1 and Main One Cable), tying Africa into the broader global infrastructure. While mainly connecting coastal countries, they also will connect land-locked countries in East and Southern Africa. Analysts project that the new cables will help reduce broadband prices by up to 90%. This should provide a unique opportunity for these countries to “unlock” themselves and access the global market.

The stage is set for mass adoption of the Internet across the continent by combining rapid penetration of cellular technologies with increased access to the Internet. Emerging platforms that bring Internet access to mobile phones also will help the region bypass the need for computers when linking into networks of prosperity.

For SMEs, the traditional paradigm for procuring IT was to buy their own software and hardware. Now, SMEs can buy access to IT resources from cloud providers on a pay-by-usage basis. The SME only needs a good Internet connection to remotely access the IT infrastructure that is located in the cloud provider’s data center. The cloud provider can offer access to IT services for a lower cost than an on-premise IT infrastructure. This low cost is achieved by the cloud provider’s ability to share IT infrastructure among a large number of consumers by utilizing efficient IT service management.

Independent Software Vendors (ISVs) use clouds to deliver applications known as Software as a Service (SaaS), which are accessed through PCs and mobile phones. A familiar example of SaaS is Gmail. Gmail is an email application running in the Google cloud data center and can be accessed through the Internet, using a simple web browser. Other examples of SaaS used by SMEs are Salesforce.com, SugarCRM.com, and zoho.com.

This paradigm integrates mobile, Internet and cloud technologies to deliver business applications for SMEs. It solves many ICT challenges for sub-Saharan SMEs. The SaaS vendor manages the business application and there is no need for huge up-front capital expenses, as it is provided with a monthly subscription (typically less than $10/ month/ user).

Sub-Sarahan SMEs also benefit from the late adopter advantage. In industrialized countries, the SaaS model is facing the need for expensive services to integrate SaaS with their other business applications running on their legacy IT infrastructure. This is generally not the case in SSA where there is no need for integration, as most SMEs do not have legacy systems.

In addition to increasing productivity, clouds will provide business opportunities in developing markets. According to Zinnov Management Consulting, India is becoming the hub of cloud activity, targeting the 30% or annual $7 billion that will be outsourced.

Blue Sky Opportunities

SSA has the opportunity to leapfrog into a SaaS paradigm of business applications. However, for this to be successful, SSA needs to address some major challenges.

First, Africans need to identify the right partners: the cloud providers, the ISVs, and the SMEs. Today, no major cloud provider has plans to deploy cloud infrastructure in Africa. Therefore, it will be critical for governments in SSA to take leadership in the deployment of regional cloud data centers to support local SMEs. Natural partners for hosting cloud data centers in SSA are telecommunication companies that have data centers in all major metropolitan areas. They have the skilled IT resources, are the providers of mobile technology to SMEs, and are also the Internet providers after their recent broadband cable investments. They are uniquely positioned to deliver and market SaaS through the Internet.

Second, SMEs must choose local business applications that meet local needs that are appropriately priced. This requires local ISVs developing business applications with designs that meet local realities, not those that worked in the developed world. They must rely on local innovation to address these needs. An example of such an innovation developed in Kenya is M-Pesa, or mobile money. It is a service that is expected to revolutionize banking in a region where more than 80% of people are excluded from the formal financial sector.

A critical element to a successful cloud-computing platform in emerging markets is building a low-cost solution that is easily absorbed by local businesses. Indirect costs are higher in SSA, and solutions are needed to reduce costs. Free open source software can address these higher costs. Canonical, a South African ISV is offering Ubuntu, one of the best free versions of Linux. Canonical could be a partner that can promote and support Ubuntu to local ISVs, who would develop innovative solutions.

Third, a good education system is needed to acquire the expertise to deliver appropriate and sustainable SME solutions. Governments need to promote the development of education curriculum in computer and information science starting in the schools and at local universities, but also need to create incubation centers and technology parks to support the development of new businesses by innovative entrepreneurs. Government policy can support an innovative environment for attracting private equity or protecting intellectual property.

Finally, the most difficult challenge is IT adoption by SMEs who have little IT knowledge. One opportunity here is for SSA to tap into the extraordinary good will that is directed towards developing countries. This support can come from:

  • Individuals who wish to play a bigger role in resolving global issues by contributing know-how, services, and mentoring, such as retired or active senior executives, business students, or financial sector experts.
  • Diaspora members, who wish to support entrepreneurs in their homelands with remittances, informal financing, and business advice and mentorship.
  • A reverse “brain drain” of African professionals, who were hit by the recent economic downturn in industrialized countries, and wish to spur growth in their native countries.

The Next Silicon Valley is Near the Rift Valley

The race is on. Several countries in SSA are competing to become the next “Silicon Valley” of the region. The first country to offer an environment for innovative local businesses to flourish will have the best chance for success. Entrepreneurs will go to a country that is building the critical mass needed, vs. locations where isolated and uncoordinated efforts make it difficult to succeed.

All of this highlights SSA’s potential as an innovation hotspot and shows an increasing opportunity for business development through IT services. This new ICT paradigm can significantly improve the professional management and efficiency of SMEs. It will increase SME revenue and local employment, and develop a new industry of regional IT enabled services, while connecting the entire region with the global marketplace. It is up to the entrepreneurs and governments of the region to grasp that opportunity.

While many efforts to leverage ICT for the development of the private sector are taking place in Kenya, Tanzania, Senegal, Ghana, South-Africa, Nigeria and other countries in the region, one country is moving faster than others: Rwanda seems more aggressive than others in developing the right environment. Under the leadership of President Paul Kagame, whose ICT vision has been recognized by several international awards, the country has taken several critical initiatives. As a result, Rwanda was the number-one reformer world wide in the World Bank’s Doing Business 2010 Survey. In 2008-09 alone, Rwanda completed seven reforms to ease the path of investors doing business. An online business registration service has been officially launched in Rwanda, reducing the time it takes to register a company from a day to just one hour.

President Kagame told the International Telecommunication Union (ITU) 2009 Summit in Geneva, Switzerland that Rwanda invested more than a half a billion US dollars in communication infrastructure, 70% of which was private investment. Rwanda has deployed a fiber optic network to serve the capital Kigali and the major cities across the country, and just completed a national data center.

The government of Rwanda is also partnering with universities to develop new software engineering curriculum in local universities. The government commissioned Carnegie-Mellon University’s (CMU) School of Engineering to open a CMU campus in Kigali to host graduate programs in computer and information science.

The CMU campus will include an innovation incubation center, in partnership with Bridge2Rwanda, and support from the SEVEN Fund, to provide entrepreneurship programs and expertise in business planning, marketing, intellectual property rights to help graduate students and others start their own ICT business. The coexistence of universities that are connected by cloud technology, innovation incubation centers, and businesses in a technology park could help start the next “Silicon Valley” in East Africa.

This will be the home to the newest nomads in the region.

Categories
Entrepreneurship, Technology
Tags
employment, small and medium enterprises, technology