Why local funding is critical for ICT projects

What do foreign investors see in our ICT potential that locals don't?

 

IN SUMMARY

  • Our typical local investor is only interested in the traditional assets revolving around real estate.
  • We should as a country be having as many intellectual ideas being funded by local financial institutions.

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Chinese billionaire Jack Ma recently committed $10 million to funding tech entrepreneurs across Africa. He selected a local innovation lab, Nai-Lab, to manage and disburse the fund to 100 successful start-ups over the next 10 years.

Whereas this is excellent news from most perspectives, it raises some pertinent questions.

What is this that foreign investors see in our ICT potential that local investors don’t? Additionally, what are the ‘strings’ attached, which more often than not go hand in hand with foreign money.

LOCAL INVESTOR

Our typical local investor is only interested in the traditional assets revolving around real estate – land and construction.

Our financial eco-system that includes banking, insurance and legal services has also developed around the same asset types and therefore has little or no capacity to evaluate funding requests destined for ICT-based investments.

If a team of four ICT graduates approached a local bank and asked for a loan of, say, Sh1 million to fund some software idea, they will most likely be turned down, because our banks have not really bothered to develop the necessary risk management tools for evaluating these types of investments.

NO INTEREST

The few financial institutions that have the capacity to do so have absolutely no interest, because they are already making huge profits selling the traditional real-estate based loans.

Even existing ICT start-ups that seek to scale up by expanding into regional markets may face similar challenges in accessing financing. And this is the gap that foreign investors are filling.

Is it a bad thing? Definitely not. However, it is not optimal nor the ideal.

As we all know from our SGR experience, foreign investments do come with their own pound of flesh demands. Sooner rather than later, the outbound financial flows from the investment will exceed those that are retained within the country.

BUSINESS REALITY

It is not necessarily anyone’s fault. It is just a simple business reality – that whoever pays the piper calls the tune. And this sad situation obtains in most other research-based or intellectual property endeavours.

Take, for example, the high-end research around HIV or tropical diseases done by our local scientists but funded by foreign companies. Obviously, the strings attached would specify that the patent drugs discovered will belong to the funding agency – not the Kenyan scientist.

The Kenyan scientist will, of course, get paid off for their one-time compensation for labour while the funding agency will continue to milk the proceeds of the patent 20-plus years down the road.

INTELLECTUAL INVESTMENTS

In other words, local financial institutions must begin to package some of their products with a view to tapping into the non-tangible or intellectual investments like innovations, research, music and books.

A few innovators have also tried to create such ICT based investment products but the effort needs to be concerted at the national level in order to have the expected impact.

We should as a country be having as many intellectual ideas being funded by local financial institutions as the number of real-estate or construction projects.

Unless and until that happens, we will continue playing at the bottom end of the knowledge-economy value chain as the foreign investors reap heavily, simply by investing where we prefer not to.

Mr Walubengo is a lecturer at Multimedia University of Kenya, Faculty of Computing and IT. Email: jwalubengo@mmu.ac.ke, Twitter: @Jwalu

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