Ethiopia’s Long March

By Hruy Tsegaye

Towards Sustainable Tech Markets

In Ethiopia, it is customary to confuse technology as a by-product of development. Unfortunately, it is not only the average Joe or Jane who holds this erroneous belief, but most government officials and policymakers along with administrators in the public universities. Yet, technology is a tool for development.

 

The confusion, is partly rooted in the mix up between marketable tech products and technology. This article addresses the issues concerned with the prior; is there a room for a sustainable tech market in Ethiopia?

Where does the rest of the world stand now? 

The developed world has accepted the inevitable fact that the world is at a turning point; technology is about to bring radical changes. The new progress in advanced technology is not just the familiar industrialization and modernization process; it is disruptive.

According to most scholars, new innovation is either sustaining or disruptive. The first is all about improvements to an already established technology; it is about understanding the needs and complaints of customers within the existing market and then modifying or creating products that satisfy such needs. On the other hand, disruptive technology displaces an established technology and shakes up the industry; it is a pioneering and radical product that creates an entirely new industry and new market separate to the mainstream. Currently, Artificial intelligence (AI), robotics, Internet of things (IoT) and blockchain contribute the lion’s share to the commercialization of disruptive technologies. Such technologies, in the developed world, are in control of almost everything.

Hence, developed and developing nations are modifying their policies in order to accommodate fast paced change. The old way is no longer the best way.

In the meantime, countries like Ethiopia are struggling [or failing] to implement sustaining technology within their industry. Furthermore, nations are failing when it comes to creating a local tech market.

A sustainable local tech market, is it a fairy tale?

What does a sustainable tech market need? Broadly speaking, the tech market needs the fulfillment of three major demands. Quality of the education system, flexible market policies, and innovative business models backed by strong marketing structures.

The education system in Ethiopia, unequivocally, is outdated. The laboratories are often non-existent and where they do exist, are filled with obsolete equipment that has no or very little value in today’s tech market. Because of disruptive technologies, ordinary computers are no longer laboratory equipment; they are stationary.  As a result, students cannot be innovators. At best, they are commentators.

The curricula lack room for project/practice-based education. Out of the 40 something public universities in the nation, more than 35 produce electrical engineers who have never seen or worked on microcontrollers and actuators like Arduino and Servo Motor. These gadgets are not advanced or expensive, despite their fancy names.  They are as common as pens in the rest of the developing world.

The university-industry linkage (UIL) is dead. Instead of linking universities with industry for collaborative activities, it is limited to internship programs, which is one minor component of UIL.

The dilapidated and often depressing conditions of these universities can be explained only via the dead horse theory: when a horse is dead the rider must acknowledge that the horse is dead. The best strategy is to dismount and change horses. Yet, in Ethiopia, public universities are choosing ‘most advanced’ strategies, including buying a stronger whip, buying exotic grasses as an incentive, changing riders, appointing a committee to study the dead horse, arranging foreign travel to observe how other nations ride dead horses, hiring outside contractors to ride the dead horse, and providing additional funding and training to increase the performance of the dead horse.

Beating the dead horse is expensive!

         Beating the dead horse is expensive!

When it comes to current market policies, they are no better than the public universities. Policymakers have no clue that the current global market is soon to be dominated by a ‘knowledge economy’. Fortunately, the country has acknowledged that an agriculture-based economy is no longer effective; unfortunately, a definitive policy framework is not backing the transfer to the industry-based economy.

First and most, the current policy lacks a practical scope for startups and how to regulate them.  The world has seen that tech start-ups are winning the harsh competition in the global market via their disruptive products/services. In Ethiopia, from the licensing process to taxation, tech start-ups are treated in the same way as established businesses.

Even though the nation’s gross domestic product (GDP) has sustained an increase, the major financiers are still governmental institutes. The policy has very rigged and often super bureaucratic rules and regulations while addressing private-government business relations.

Just as an example, look at the bidding system. The government imposes a very rigged market policy that forbids its organizations, institutes and its mega projects from purchasing either a service or a product from the private sector unless through a bid. Obviously, this policy was supposed to control corruption. Yet, it has become another story; corruption is spread like a wildfire because of the very same policy.

Instead of cultivating an open and transparent partnership with the private sector, the bids are often rigged and obscure, creating a loophole where only those private firms that have loads of cash can triumph. This is because of two reasons.  First, most bids have no room for the first installment and the payment comes at the end (especially for suppliers of goods).

Second, , the bids must go through the Public Procurement and Property Administration Agency. Often, the Agency collects purchase demands from multiple government bodies and then calls for a bid for a collective purchase. The current bidding system has terminated the age of a bilateral business partnership based on mutual negotiation. Instead, it is just a buy-and-sell deal that has no room for innovation and creativity. It also lacks the ability to integrate innovative business ideas and the need for non-disclosure agreement; small tech companies cannot submit a unique project idea for governmental institutions if their proposal is disclosed to the public and the competing companies via an open bid.

How can small businesses thrive under such conditions?  If GDP growth was the contribution of the private sector, this would haven’t been a major issue, but because almost all of the GDP is the result of government investments, such a market policy becomes destructive.

Ethiopia is one of the very few nations lacking an e-payment. The country’s central bank has no short- or long-term plan on how to implement the system. Without a fully operating e-payment system, the success of tech start-ups engaged in the business of selling their product/service via mobile applications, desktop applications, and web applications is next to impossible. Start-ups engaged in the IoT business are also heavily dependent on the e-payment and online financial transaction.

The unhealthy level of government involvement in the existing tech market is another hindrance. As an example, institutions like the Federal Information Network Security Agency are shamelessly involved in the software market via a monopolistic approach and often compete against start-ups. One government body will call for a contractor, and then another government institute will take the contract. Such monopolistic participations are critical when the major player in a country’s economy is the government.

Start-ups will succeed if there is a transparent and flexible platform for funding. The market and finance policy is so outdated that it cannot facilitate financing methods like initial public offering and crowd funding. So far, there are no hedge fund institutes and the banks have no policy to help start-ups access the finance required at least for the initial investment costs.

 

The third requirement is innovative business models backed by strong marketing structures. It is pretty clear that failure in the first two requirements has a significant hindrance on the last precondition.  Aside from their impact, let us mention a few more challenges.

Innovative business models need satisfactory infrastructure. For tech start-ups, one of the most important is the internet. The price of internet services in Ethiopia is not start-up friendly. Next to the price, the quality is shabby. There is an incident where at Ethiopian Tech company sent a software product through the snail mail via a flash disk. Server farms do not exist in Ethiopia and the infrastructure related to cloud computing, as of writing this article, is a pie in the sky.

Digital marketing is the new powerful tool for tech startups in the rest of the world. In Ethiopia, the concept is alien. Note a single business school in the country offers a course on digital marketing.

International collaboration can determine the success of a business model. Unfortunately, the foreign currency regulation is the bottleneck where such international collaborations stand still.

Incubators and accelerators often confuse the role of Maker Spaces with their business. Our current incubators, especially those of the government, are not at all incubators. Without their financial pumps, incubators and accelerators are ineffective and offering free space and the internet does not make them incubators or accelerators, rather it makes them hacker spaces or maker spaces.

Local investors lack the initiative to invest in local tech products.  Their business model is that of the early 1980s or 90s.

Corporate Responsibility is a dusting concept in Ethiopia. One of the remarkable benefits of CR in the rest of the world is that business firms often reinvest in start-up projects within their community either via a grant, sponsorship deal or business contracts. In addition, most Ethiopian business organizations (this includes government institutions as well) lack a research department. Such departments in other developing nations are proved to be crucial as centers for either disruptive or sustaining technology.

Is it all gloomy then? 

Not at all! Ethiopia has three comparative advantages over most nations when it comes to the creation of a sustainable local tech market.

The first comparative advantage is the sheer size of the population, which gives Ethiopia the upper hand in the tech market. Start-ups and tech entrepreneurs will not find it troubling to establish a tech market because the local market size by itself is enough to sustain it.

Secondly, Ethiopia is unexploited and all of the nation’s problems are still waiting to be solved; there are enormously vast opportunities for those who want to harness emerging technology as a marketable product/ service.

Third, the demography of Ethiopia is dominated by youth. This makes the nation a fertile ground to cultivate innovation; young people are not shackled by the burdens of nostalgia and old habits and they are open to trying new ideas. In addition, the very same demography can be turned into loyal customers. Often tech products are rejected by the older generation. As the old internet saying goes, the grandparents say write me, the parents say call me, the children say email me and the grandchildren say text me.

The government is not in total opposition to changes and there have been some hopeful signs in the past two or three years. It looks like a major policy change is on its way, which may consider some of the factors mentioned in this article.

Even if it is not carefully studied, there is a considerable rise of interest among foreign investors in the Ethiopian tech eco-system. Studies indicate that Foreign Direct Investment had a great impact on the transformation of Kenya and Nigeria into Africa’s silicon valley.

Ethiopia can still catch up! The very good news is that the country can save a lot of time in the process as well; technology leapfrogging has proved to be a reliable strategy in nations like India and South Korea.

This article was originally published in the November issue of Ethiopian Business Review magazine.

From the editors of iCog-labs.com

This Article was originally written for the bi monthly magazine Ethiopian Business review and it is republished here with the verbal permission of the EBR’s Editor in Chief. 

 

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