April 6, 2019//-Can Ethiopia forge a path for itself as a tech hub? The country’s technology sector is still small, but the government is investing in incubation hubs to unleash the power of its large pool of tech-savvy graduates.
Tom Collins reports.
Tewodros Square, a busy roundabout in Addis Ababa, is home to an offbeat monument.
Cast in bronze, it is the replica of a 6.7 ton mortar manufactured in Ethiopia in the 1850s, constituting a technological milestone for the country at that time.
The original piece, named “Sebastopol” after a battle in the Crimean War, was commissioned by the modernising Emperor Tewodros II in an early attempt to speed up the country’s progress.
The monument now sits just a stone’s throw away from the present-day Ministry of Innovation and Technology.
The ministry, like Sebastopol, was until recently a hurried afterthought in Ethiopia’s development.
Traditional sectors like agriculture held sway and new ones like manufacturing were seen as the true engine behind Ethiopia’s transformative growth.
This is beginning to change as prime minister Abiy Ahmed makes it clear that Ethiopia’s norms can no longer be taken for granted.
Abiy, a former minister of science and technology, is said to retain a key interest in his former sector.
The wheels have been set in motion and the potential emergence of Ethiopia as a tech hub is underway.
Tech-led growth
Getahun Mekuria, Ethiopia’s minister of innovation and technology, points out that services account for 65% of global GDP – far more than agriculture or manufacturing.
“That means that the best way to really create wealth in the world is through technology-based and knowledge-based industries,” he concludes.
Mekuria’s immediate challenge then is to raise the Ethiopian tech sector to 2% of GDP or $2bn in the next two years – up from what he calls its “insignificant” contribution today.
Ethiopia’s advantage, he argues, is the large number of science, technology, engineering and mathematics (STEM) educated graduates who are beginning to enter the job market following the government’s investments in higher education.
In 2017, a report by the World Bank found that overall enrolment in higher education facilities had multiplied fivefold since 2005, with the number of public institutions increasing from eight to 36 in that same period.
The government has also implemented a 70:30 higher education policy – training 70% of students in technology and science compared to only 30% in social science and humanities.
“Our labour market is now changing; we have surplus graduates in the areas of technology, engineering and sciences,” explains the minister.
“They are good at being entrepreneurs and creating wealth.”
Yet with limited demand for skilled technology graduates in the Ethiopian market, the government must ensure these entrepreneurs are able to contribute to the economy.
Mekuria and his ministry have acted by creating government-sponsored incubators in order to nurture Ethiopian startups.
With one facility housing 80 to 100 entrepreneurs already in action, Mekuria reveals he is in conversation with the Industrial Parks Development Corporation of Ethiopia to create a “huge incubation centre”.
Industrial parks – offering concessions to foreign capital looking to create export-led manufacturing businesses – have been a mainstay of the Ethiopian development model thus far, and the minister’s wish to merge tech into this setup reaffirms the push towards tech-led growth.
The overall aim is to create 20,000 tech jobs and 2,000 SMEs within two years which will sustain the growth of a $2bn tech sector.
Hi-tech ‘Abiymania’
Almost without exception, the business community of Addis Ababa is excited about the new era of private-sector-led growth promised by the prime minister.
State-owned companies in telecoms, banking and aviation could soon offer stakes to private investors, a process likely to open up opportunities for tech companies.
The most exciting development is the privatisation of the telecoms sector, which is currently dominated by state-owned Ethio Telecom.
Pazion Cherinet, CEO of Orbit Health, a tech company providing digital solutions to healthcare in Ethiopia, calls it a “long overdue effort” and explains how poor services and products from the government provider have negatively impacted his business.
“The lack of cloud services on the ground for example has put a tremendous burden on us because it means we have to hold the patients’ information at facility level and that incurs a cost,” he says.
Now that the sector is being liberalised, more players are expected to enter the market, competition is expected to increase and services may improve.
The community is also anticipating dividends from Abiy’s technological background.
His influence and understanding of the tech sector is seen as a watershed moment in Ethiopia’s transition to a digital economy.
Yet translating this hype into reality will be a different story.
The budget remains heavily weighted in favour of traditional sectors, meaning the minister of innovation and technology has relatively few resources to implement his ambitious targets.
Ethiopia is also one of the least connected countries in the world with an internet penetration rate of only 15% in 2016, up from 12% the previous year, according to the latest data from the International Telecommunications Union (ITU).
Mobile phone penetration was recorded at a low 51%, up from 43% in 2015.
Such low penetration rates stem from underdeveloped telecommunications infrastructure, which is almost entirely absent from rural areas, where about 85% of the population resides, according to the ITU.
What tech development there is is heavily concentrated in Addis Ababa.
Given this reality, the support Abiy can actually provide to the up and coming sector in the context of a relatively undeveloped country with a bias towards agriculture and manufacturing is up for debate.
“I can see Abiy has an enormous amount of passion but at the moment – practically speaking – there are still lots of challenges the country has to go through before we can get to technology,” comments Cherinet.
Abiy’s enthusiasm is also not necessarily shared across Ethiopia’s government and indeed society at large.
Cherinet explains how moves towards a digital economy and the wholesale acceptance of digital solutions require a significant shift in mentality.
He recalls having to telephone a government ministry in order to inform them he had just sent an email.
This stubbornness to adapt to innovation remains rife and Ethiopia itself is surprisingly lacking in many of the tech-enabled services like Jumia, Uber and M-Pesa which are common in other parts of Africa.
“In order to achieve nationwide success the most critical bridge to digitisation is for the country to embrace digitisation,” concludes Cherinet.
“Rwanda, for instance, has embraced technology at all levels which allows the sector to grow.”
This unfamiliarity – coupled with the bureaucracy of the Ethiopian state – helps explain the government dragging its feet when it comes to legislation and interaction with the tech sector.
Citizens and corporates alike often bemoan the laborious process of physical visits and written letters to Addis Ababa’s ministries in order to achieve their aims.
Habtamu Tadesse, CEO of ZayRide, a ride-sharing startup similar to Uber, recounts nearly three months of discussions with the Ministry of Transport in order to barter for the legislation necessary to enable his business model.
The ministry currently considers ZayRide a transport company whereas Tadesse – who is not interested in owning cars but linking up taxi drivers with customers – would rather ZayRide was considered a tech company.
Unfortunately, he argues, there is a “complete disconnect between the Ministry of Transport and the Ministry of Innovation and Technology” which resulted in him writing a letter to the prime minister’s office in an attempt to expedite the process.
Raising capital
Although setting Ethiopia’s tech future in motion, Abiy’s government still has a long way to go to transform the country into a tech-led economy.
Unable to wait, Ethiopia’s startup community has been operating in the background but faces familiar barriers to scaling, including a lack of capital and poor infrastructure.
The ecosystem, as it stands, looks scant in comparison to its more developed neighbour Kenya.
Aside from the government incubator, only a few other incubators and accelerators are dotted around town including Blue Moon and Growth Africa.
Most small- to medium-sized startups that have progressed from their early stages have done so thanks to outside angel investment and seed funding, as raising capital in Ethiopia is a challenge.
Both ZayRide and Orbit Health report having to appeal to wealthy diaspora in the US for funding and concede that without those connections it wouldn’t have been possible.
According to Tadesse, the domestic pipeline is dry.
“Raising capital is the hardest thing to do in Ethiopia, especially if you are involved in technology,” he says.
“They [investors] want something visible and tangible, they don’t really think tech is the future here.
I had to go to the US to find successful Ethiopians who understand the importance of technology and that’s how we were able to raise capital.”
Wealthy diaspora citizens with exposure to technology – many of whom eye a return given reforms – will likely fund Ethiopia’s tech expansion in the immediate future.
While Ethiopia still has a long way to go to unleash the power of its tech-educated graduates, Abiy’s arrival signals the beginning of that journey.
With a committed public sector Ethiopia could yet forge a path for itself as a rising tech power on the continent.
Tom Collins
This was originally published on africanbusinessmagazine.com.
