Development

Note: This blog post is a consolidation of a 4-part series I wrote for Tekedia. They were published between June 10, 2012 and July 22, 2012. This version is substantially identical to the originals from which it is compiled, with only non-material updates.

My exam is behind me now, and I can turn my attention back to topics that I would like to explore in this column. Before you ask me how the exam went . . . results come out in late July. Don’t worry, you’ll know if I pass because I’ll brag so loudly that you can’t bear but get fed up with me.

You may recall that my article How African Countries Can Spur Startup Innovation was inspired by an article published by BusinessWeek. I want to explore that topic further over the next two or three installments of this column. This time my inspiration comes primarily from How To Make A Region Innovative.

Before we dive in I should point out one important caveat. I am neither an economist nor a policy maker. Yet, I hope we can start and sustain a conversation that goes beyond my limited capacity to tackle a topic this enormous using the format of a series of “blog posts”. I should also point out that I believe African’s as a people are more entrepreneurial than most, however much entrepreneurship in Africa is of the subsistence variety. I have in mind the kind of high-impact entrepreneurship that lifts millions out of poverty at once by creating a platform on which other revenue generating activities and businesses can be built.
Why the focus on “making Africa more innovative and entrepreneurial”? In two phrases, economic growth and poverty reduction. There is growing evidence to suggest that the internet is spawning an era of economic growth unlike any we have seen in history. In May 2011 The McKinsey Global Institute said¹This article is based on The Global Innovation Index 2011, accessed online on June 22, 2012.:

New McKinsey research into the Internet economies of the G-8 nations as well as Brazil, China, India, South Korea, and Sweden finds that the web accounts for a significant and growing portion of global GDP. Indeed, if measured as a sector, Internet-related consumption and expenditure is now bigger than agriculture or energy. On average, the Internet contributes 3.4 percent to GDP in the 13 countries covered by the research—an amount the size of Spain or Canada in terms of GDP, and growing at a faster rate than that of Brazil.

Africa has a rare opportunity to accelerate her efforts to diversify beyond the extraction and export of primary commodities and to create the conditions that will foster the growth of startups that harness the internet and software technology to build businesses that become successful enough to earn hundreds of millions, even billions, of dollars in annual revenue while employing hundreds if not thousands of her people in the process.

Ernest J. Wilson III states that four different sectors must link together to create a center of innovation (or innovation cluster), an environment that fosters creativity and innovation. He calls this the “quad” and it comprises;

• Government agencies that provide and invest in the infrastructure that is necessary for the activities that must go on within the center of innovation to occur. An example of such infrastructure investments would be the internet connection between Ghana and the rest of the world – over the course of a six month mentoring relationship, I never once successfully held a video chat using Skype with the team of four entrepreneurs in training at the Meltwater Entrepreneurial School of Technology in Accra that I had been assigned to assist as a volunteer advisor while they tried to conceive and develop an internet based software startup and compete for funding from the Meltwater Foundation. Other examples? Schools. Transportation. Power generation plants – yes, NEPA (aka Never Expect Power Always) I am looking at you. Power transmission lines. Land. These are the types of infrastructure investments that are critical to the establishment and success of a center on innovation. They are also the kinds of investments that government is best positioned to make because they must happen at a massive scale. Government also has to maintain the legal, regulatory and tax regimes that govern activity in centers of innovation.
• Universities provide a steady supply of people with the skills and the knowledge to pursue innovative solutions to problems that become the foundation on which great businesses can be built. Research that has sat in university labs can be brought to the real world. University students can continue the pursuit of solutions to problems they were grappling with in school after graduation by forming startups that set up their base in the confines of the center of innovation.
• Nongovernmental or nonprofit organizations provide services that highlight chronic problems waiting for the “problem solving” treatment that entrepreneurs are so good at providing. In some cases some nonprofits and NGO’s might even start solving some of these chronic problems. Two examples I am familiar with are the Meltwater Foundation and the Kumasi Center of Lifelong Learning – I am a volunteer advisor with KCCL.
• Businesses function as the economic engine of the innovation cluster by providing the capital for strategic investments in the kind of innovation that attracts large numbers of customers and generates profits large enough for reinvestment in more strategic innovation. This cycle of sourcing capital, investing it, generating profits, and reinvesting a portion of the wealth that has been generated creates a unique vitality and creativity that none of the other three sectors can replicate with the same level of success.

A high level of trust is necessary for the collaboration between these sectors to be successful. Without trust leaders within each sector will transact with a short-term focus and will tend not to look beyond the immediate transaction at hand. Innovation clusters only succeed when all four sectors work collaboratively knowing that their individual and collective interests will be protected over the long term.

Why are some nations more innovative than others?
Fortunately we do not have to attempt to divine an answer on our own. INSEAD professor Soumitra Dutta leads a research project, the Global Innovation Index, conducted by INSEAD in partnership with Alcatel-Lucent, Booz & Company, The Confederation of Indian Industry and the World Intellectual Property Organization.

I can imagine that one of the questions you must be thinking about at this very moment is this: How do they measure innovation? The following description of their methodology comes from their website²Any mistakes in quoting from GII 2011 are entirely mine..

The Global Innovation Index 2011 (GII) relies on two sub-indices, the Innovation Input Sub-Index and the Innovation Output Sub-Index, each built around pillars.

Five input pillars capture elements of the national economy that enable innovative activities: (1) Institutions, (2) Human capital and research, (3) Infrastructure, (4) Market sophistication, and (5) Business sophistication. Two output pillars capture actual evidence of innovation outputs: (6) Scientific outputs and (7) Creative outputs.

Each pillar is divided into sub-pillars and each sub-pillar is composed of individual indicators. Sub-pillar scores are calculated as the weighted average of individual indicators; pillar scores are calculated as the simple average of the sub-pillar scores. Four measures are then calculated:

• The Innovation Input Sub-Index is the simple average of the first five pillar scores.

• The Innovation Output Sub- Index is the simple average of the last two pillar scores.

• The overall GII is the simple average of the Input and Output Sub-Indices.

• The Innovation Efficiency Index is the ratio of the Output Sub- Index over the Input Sub-Index.

They do this for:

. . . . 125 economies, accounting for 93.2% of the world’s population and 98.0% of the world’s Gross Domestic Product (in current US dollars).

So how do African countries fare? Not good. Mauritius and South Africa are the highest ranked African countries at 53 and 59 respectively. Tunisia, Ghana, Namibia, Botswana, Egypt, Kenya, Morocco, Nigeria, Senegal, Swaziland, Cameroun, Tanzania, Uganda, Mali, Malawi, Rwanda, Madagascar, Zambia, Cote d’Ivoire, Benin, Zimbabwe, Burkina Faso, Ethiopia, Niger, Sudan and Algeria respectively fall somewhere between 64 and 125. It is interesting to note that the United States is ranked 7 and Switzerland 1. Brazil, Russia, India and China are ranked 47, 56, 62 and 29 respectively. Sweden, Singapore, Hong Kong and Finland round out the top 5 in that order.

So what lessons can we glean from the GII 2011? You will recall that we have previously stated that in order to create centers of innovation (or innovation clusters) government agencies, universities, non-governmental or nonprofit organization and businesses need to work in partnership. We did not say how such a partnership might function. To gain some insight I decided to dig into the GII 2011 Report. It is available without charge online.

In the GII 2011 Framework, one of the roles African governments should play in nurturing innovation clusters on the continent is studied under the Institutions pillar. It comprises three main elements as sub-pillars; Political environment, regulatory environment, and business environment. The political environment plays a role in the development of innovation clusters by fostering political stability, government effectiveness and press freedom. The comparison of the regulatory environment in each of the countries studied by the GII is based on regulatory quality, rule of law and employment flexibility or rigidity of employment as it is called in the report. Finally, conclusions about the business environment are drawn after examining such things as the length of time it takes to start a business, the cost of starting a business and national tax regimes.

The GII 2011 Framework argues that the innovation capacity of a nation is determined by the level and standard of education and research activity. It tries to gauge the human capital of the countries included in the index by studying three things; Education, Tertiary Education, and Research and Development (R&D). Here the GII looks at a country’s effectiveness in educating its citizens at the elementary level as well as at the tertiary level. Tertiary education is important mainly because it enables countries to transform themselves from exporters of primary commodities into exporters of finished, manufactured goods that rely on specialized knowledge in science and engineering. R&D measures the level and quality of activities that transform ideas into products and services. Education is another area in which African governments have a big role to play. It is also an area in which an effective partnership between the public and private sectors can yield enormous dividends – a strong public education system that educates the vast majority of a country’s citizens, and is supplemented by well funded private elementary, secondary and tertiary institutions that educate a small minority of people that can afford to pay for a private education. Ideally, the public option should be competitive with the private option in terms of output at every level.

The GII 2011 Framework delves into the importance of infrastructure in aiding the formation of innovation clusters. We touched on the importance of infrastructure only very briefly in part I, where we suggested it is another area in which government bears primary responsibility. GII goes a step further;

Information and communication technologies (ICT), energy supply, and infrastructure are respectively the nervous system, the circulatory system, and the backbone of any economy. They facilitate the production and exchange of ideas, services, and goods and feed into the innovation system through increased productivity and efficiency, lower transaction costs, and better access to marks.

In relation to ICT, GII studies access, use, government’s online service, and e-participation. To reach its conclusions on energy it studies electricity output and consumption, GDP per unit of energy use, and the share of renewables in a country’s energy use. General infrastructure is studied by examining each country’s quality of trade and transportation networks, gross capital formation and ecological footprint and bio-capacity.

The fourth pillar on which the GII is based relates to market sophistication. This pillar comprises sub-pillars that examine credit, investment, and trade and competition.

Credit is studied by

. . . measuring the degree to which collateral and bankruptcy laws facilitate lending by protecting the rights of borrowers and lenders, as well as the rules and practices affecting the coverage, scope, and accessibility of credit information.

The investment sub-pillar is closely related to credit. The investment sub-pillar measures

. . . . the extent of disclosure and of director liability and the ease of share holder suits. To show whether market size is matched by market dynamism, stock market capitalization is complemented by the value of shares traded.

GII 2011 is the first year in which venture capital deals have been included in the study – 7,937 deals in 81 countries form part of the research study.

The last sub-pillar under market sophistication looks at trade and competition by country:

The market conditions for trade are given by two indicators: the average tariff rate weighted by import shares and a measure capturing market access conditions to foreign markets. The sub-pillar then includes the total value of exports and imports as a percentage of GDP.

The GII research team did not have a lot of success obtaining hard data on competition. However, the study includes a survey question that reflects on the intensity of competition in local markets.

The business sophistication pillar takes the logic that was introduced under the human capital and research pillar a step further. Business sophistication studies how the businesses within a country foster their own productivity, competitiveness and innovation potential by employing people that have benefitted from the country’s education infrastructure. It also examines links and partnerships between public and private entities in fostering the diffusion of innovation within each country’s economy. Lastly, this pillar looks at knowledge absorption within an economy by examining foreign direct investment net inflows, and royalties and license fees payments, among other things.

The sixth pillar is one of two output pillars in the GII 2011 framework. Scientific outputs looks at knowledge creation, knowledge impact and knowledge diffusion. This pillar looks at all the variables that have traditionally been recognized as fruits of innovation. It also looks at

. . . . the impact that innovation has at the micro and macroeconomic level: increases in labour productivity, the entry and density of new firms, and spending on software.

Knowledge diffusion under this pillar is a mirror image of knowledge absorption under the market sophistication pillar. It examines statistics linked to sectors with high-tech content or that are key to innovation.

The seventh pillar looks at creative outputs. It has two sub-pillars. Creative intangibles looks at statistics related to issues like trademark registrations as well as the use of ICT in developing new business and organizational models. Creative goods and services looks at the share of household expenditure on recreation and culture. This serves as a proxy for the comparative level of creative activity in a particular national economy.
The report devotes an entire chapter to public-private partnerships, and provides examples of public-private partnerships that date as far back as the 4^th century BC. There are examples of PPPs being used to accomplish public-private goals in East Africa as well as in Egypt.³The Eastern African Submarine Cable System and Egypt Smart Village are the two examples. Both are focused on the ICT sector.

To quote from GII 2011 on PPPs:

The term ‘public-private partnership’ (PPP) describes a relationship in which public and private resources are blended to achieve a goal or set of goals judged to be mutually beneficial to both the private entity and to the public.

However, after reading the chapter I came away with two impressions:

• First, African countries do not use PPPs as much as they could or should to advance national and transcontinental development.
• Second, the longer Africa’s national governments and her people allow PPPs to remain the exception rather than the norm the more tedious the task of driving innovation across multiple economic sectors across the continent becomes.

In chapter 3, GII 2011 looks at Saudi Arabia’s efforts to reshape its economy from one that is heavily dependent on petroleum and crude oil exports to a more industrialized and diversified economy based on its National Plan for Science Technology and Innovation (NPSTI 2010 – 2025). One need not think long or hard to recognize why Saudi Arabia’s example is one African political and business leaders might want to observe keenly. Reading about what is happening in Saudi Arabia leads me to conclude that:

• Some African countries need to set a medium term goal of becoming global science and technology supply countries – countries where multinational enterprises choose to locate their offshore research and development centers. Why? This is an acknowledged means of causing a diffusion of technology between companies and regions.
• African institutions of higher education must train and graduate more scientists, engineers, mathematicians and technologists at the Masters and PhD level. Undergraduate students in these fields must become more involved in academic and industrial research in order to build a human resource base that attracts foreign direct investment in research and development.
• National and multi-national PPPs should be used to encourage industry-university collaborations aimed at taking innovations dreamt up within the science, technology, engineering and mathematics departments of African universities and transforming them into viable commercial products developed, manufactured and sold in national, regional and transcontinental markets.⁴Don’t forget that Africa is a continent of close to 1.1 billion people according to the UNFPA.
• Innovation and entrepreneurship in African countries will remain stillborn as long as potential entrepreneurs and investors feel they lack legal recourse to protect their investments of time and money in developing and acquiring intellectual and physical property.

In chapter 7, GII 2011 looks at India’s experience shaping a national innovation system. This example too is instructive for Africa’s political and business leaders. To quote from the chapter:

The Indian innovation system is extremely complex in terms of user segments and income disparities, and therefore markets are highly differentiated. At the same time, parts of some sectors need to cater to global demands. 

So what lessons can one take from India’s experience?

• African countries must identify and establish an innovation paradigm that is in contrast to the dominant innovation paradigm. India has developed an innovation paradigm that focuses on the production of solutions to pervasive problems in a manner that makes such solutions affordable and accessible to people with extremely low incomes – people at the “bottom of the pyramid.”
• Where it is possible, African countries must identify and nurture their own pockets of excellence with a view to stimulating the growth of a robust innovation and entrepreneurship ecosystem around these pockets of excellence and enabling private firms within that ecosystem compete and conduct business internationally.
• African countries need to develop their own versions of the following programs which India’s Department of Science and Technology has been pursuing:
  • Home Grown Technology – encouraging small and medium sized enterprises to carry out significant innovations at the pilot production level.
  • ‘Technopreneur’ Promotion – encouraging Indian innovators to become technology-based entrepreneurs.
  • Technology Refinement & Marketing – supporting Indian innovation by pushing innovative technologies from prototype to viable commercial product.
• A strong intellectual property rights framework will be necessary both at national and transcontinental levels if African companies are to develop and sustain a competitive advantage.

The chapter on India ends with a discussion of the challenges India faces in her bid to foster innovation and entrepreneurship. You might recognize these problems as very similar to the problems present in almost every African country as well.

• Inertia – among political and business leaders.
• Opacity – lack of transparency in the political environment, and a system plagued with innumerable bureaucratic hurdles.
• Decay – rural and urban infrastructure that simply cannot support the ambition of building a more innovative and entrepreneurial economy.

GII 2011 does not mention corruption or unacceptably low educational standards as challenges facing India. I would suggest they pose real challenges in many African countries – at the very least in both Ghana and Nigeria, where I grew up.

Connecting The Dots and Tying Up Some Loose Ends 

We have covered a lot of ground. We will wrap things up now by connecting a few dots and tying up some loose ends. Hopefully when all is said and done we would have raised more questions than any one person can answer.

First, it is not uncommon to find that a “grand vision” lies at the genesis of successful efforts to create innovation clusters that are now the envy of the world. For example:

• Bangalore became a reality in the 1890s when J.R.N. Tata donated money and the maharaja of Mysore donated land in order to realize their dream of building a “science city” to jump start India’s modernization. Today the Indian Institute of Science (IISc) is one of the world’s greatest centers of science and technology education⁵How To Make A Region Innovative by Ernest J. Wilson III, Strategy+Business, Issue 66 Spring 2012 accessed at www.strategy-business.com on 21 July 2012. and the Tata Group “operates in more than 80 countries and markets across Africa, Asia, Australia, North America, South America and Europe.” Tata Group has business sectors in information technology and communications, engineering products and services, materials, services, consumer products, chemicals and international operations.
• Stanford University, the corner stone of Silicon Valley was formed in 1891 when Leland and Jane Stanford founded the university in honor of their son who had died shortly before his 16^th Leland Stanford was a Governor and Senator of California, and had amassed his wealth as a leading railroad tycoon. At its opening, founding President David Starr Jordan said to the pioneering class of matriculating students: “[Stanford] is hallowed by no traditions; it is hampered by none. Its finger posts all point forward.”⁶Stanford University Wikipedia page, accessed on 21 July 2012.

Second, it is no coincidence that the Global Innovation Index 2012 (GII 2012)⁷Global Innovation Index 2012 accessed online on 21 July 2012. focuses on education as a bulwark in efforts to boost innovation. A casual inspection shows that the countries that ranked high in the GII also tend to perform well on the OECD’s Program for International Student Assessment (PISA).⁸OECD PISA 2009 Database accessed online on 21 July 2012.

PISA assesses how far students near the end of compulsory education have acquired some of the knowledge and skills that are essential for full participation in society. In all cycles, the domains of reading, mathematical and scientific literacy are covered not merely in terms of mastery of the school curriculum, but in terms of important knowledge and skills needed in adult life.

In the PISA 2003 cycle, an additional domain of problem solving was introduced to continue the examination of cross-curriculum competencies.⁹From www.oecd.org accessed online on 21 July 2012.

For example:

• Korea, Finland, Hong Kong, Singapore, Norway, Switzerland, the United States, Sweden, and Germany all perform very well in the PISA assessment and also rank very high in the GII analysis.
• A high ranking in the PISA analysis does not automatically translate into an “enviable placement” on the GII – Shanghai-China sits at the very top of the PISA rankings, yet China comes in at number 34 in the GII rankings. One reason for this might be an existence of wide disparities in the quality of education across mainland China. I should point out that China’s GII placement in 2012 compares to its ranking of 29 in the GII 2011 report.

Tunisia is the only African country whose participation is reflected in the PISA 2009 database. It comes in at number 59 on the GII 2012 index and is not very far from the bottom in the PISA analysis.

Lastly, the issue of trust between government agencies, universities, non-governmental or nonprofit organizations, and businesses cannot be downplayed. On this front, Transparency International’s Global Corruption Barometer 2010/11 (GCB) data¹⁰Transparency International, Global Corruption Barometer 2010/11 accessed on 21 July 2012.  gives one pause. Among other things, the survey asked respondents how the level of corruption has changed over a three-year period preceding the administration of the survey. These are the results;

• Kenya: 39% of respondents to the survey said corruption has increased in the past 3 years.
• Other African countries I looked up in relation to that question include Ghana – 60%, South Africa – 62%, Nigeria – 73%, Uganda – 67%, Rwanda – 21%, Cameroun – 62%, and Ethiopia – 34%.
• Interestingly I did not find Botswana in the database.
• Transparency International’s Corruption Perceptions Index 2011 (CPI) ranks these countries out of 183 as follows: Kenya – 154, Ghana – 69, South Africa – 64, Nigeria – 143, Uganda – 143, Rwanda – 49, Cameroun – 134, and Ethiopia – 120. Botswana has the best performance with relation to CPI.
• For comparison the GCB and CPI data is: 64% and 73 respectively for Brazil, 53% and 143 respectively for Russia, 74% and 95 respectively for India, and 46% and 75 for China.
• May be it is not a coincidence that Kenya leads the continent as a hub for information and communication technology (ICT) innovation. It may also not be an accident that Botswana’s economy has fared as well as it has over the recent past in comparison to Nigeria, for example.

Rampant and institutionalized corruption and lack of transparency impedes the proper functioning of financial and labor markets, interferes with the functioning of the legal system in fairly and impartially adjudicating disagreements between entities participating in the innovation and entrepreneurship ecosystem, and prevents the establishment and respect of intellectual and physical property rights. Moreover, corruption drives a lot of activity into the shadow economy – a state of affairs that does not promote widespread development. As an example, imagine personnel for national water or electric utilities agreeing to accept bribes while utility bills remain unpaid by large segments of the utilities’ customers for months, even years. It does not take an enlightened mind to extrapolate the unfortunate effects such behavior will have on the ability of the utilities in this example to continue providing the service for which they were established.

However, as with everything about Africa I cannot help but admire the resilience, ingenuity, energy and eternal optimism shared by the people confronting what many would consider daunting odds.

Consider that:

• Network organizations like AfriLabs are forming all around the continent to promote the work of technologists and software engineers in developing startups to solve problems and create wealth for risk taking entrepreneurs.
• Programs like that organized by the Mo Ibrahim Foundation and the Tony Elumelu Foundation are aimed at developing a new cadre of political and business leaders aimed at spearheading the sort of grand visions that can flame the fires of development and modernization across the continent.¹¹Ben Schiller, Are MBAs The Solution To Africa’s Problems?, www.fastcoexist.com accessed on 21 July 2012.
• Programs like the Innovation Prize for Africa and others on a smaller scale encourage innovation that develops new products, increases efficiency, or saves costs in the African context.
• Though there remains a lot of work to be done, investor interest in Africa is increasing.¹²Chris Tredger, Global VCs Throw Their Weight Behind African Startups, IT News Africa, 20 July 2012. Accessed on 21 July 2012. Africans returning home after completing academic study and acquiring professional experience abroad drive some of this investor activity.

There are many more examples of that nature. Moreover, I cannot enumerate all the instances of individuals abroad investing in, and collaborating with, relatives and friends at home to start various entrepreneurial projects while also providing seed funding and advice.

One could reasonably argue that taken in isolation, none of the activities I have described above will amount to much. Taken in sum, they paint a picture of hope. Will this hope prove to be merely a mirage, or will partnerships develop that transform that hope into a tangible reality?

What do you think?