IBM's decision to locate its new research centre in Nairobi, Kenya gives yet another boost to the country's status as an investment destination for foreign technology companies.
The research lab will focus on both basic and applied research aimed at finding IT solutions for problems such as traffic congestion, government transparency and water quality. In addition, the lab will help to build IT and research skills in Kenya in collaboration with universities, government agencies and companies.
IBM chose Kenya as the location for the laboratory because of the amount of innovation it is seeing coming out of the country's technology industry at the moment, as well as the amount of co-operation the Kenyan government and universities offered, says Mark Harris, IBM's vice president of business development for Middle East & Africa.
The Kenyan market is a hotbed of innovation in areas such as mobile payments and is also steadily gaining a reputation for having a well-regulated information and communications technology sector. IBM won't disclose how much it is investing in the centre, but the Kenyan government will contribute $2m a year to the lab for the next five years.
One example project at the lab addresses the challenge of traffic congestion in African cities using predictive analytics tools to aid in traffic management, according to Harris. Though still only in its exploratory stage, the project will use data from the CCTV network on Nairobi's major roads to monitor and predict traffic flow.
"We have an ongoing plan for Africa, so this by no means a one-off investment" — Mark Harris, IBM
IBM's decision to locate its first African research centre in Nairobi has prompted soul-searching among other countries who regard Kenya's gain as their loss — but this may not be the case. "We don't see it as an either-or investment," Harris says. "We have an ongoing plan for Africa, so this by no means a one-off investment."
IBM views Africa as a key market that will outpace its current major markets in terms of revenue growth. The company estimates that the African IT market will be worth around $20bn in 2012 and says that it is one of the fastest growing markets for technology services and products in the world.
In 2006, IBM was present in Africa only in South Africa, Morocco, Tunisia and Egypt. Today, IBM has a direct presence in more than 20 countries on the continent, and recently opened an office in the Indian Ocean island of Mauritius. The company has invested in delivery centres in South Africa and Egypt as well as innovation centres in South Africa and Morocco in the past few years.
South African hub
Commentators in South Africa, the largest economy in sub-Saharan Africa, and Nigeria, the region's most populous country, fret that their countries are losing ground to East Africa and Kenya in particular.
South Africa is the sixth largest emerging IT market in the world, behind only the BRIC countries and Mexico, according to Will Hahn, principal analyst at Gartner. But is it losing ground to other countries in the region? The analyst thinks not.
"I cannot foresee the circumstances where South Africa would cease to be a vital hub for the southern African region and beyond," says Hahn. Advantages such as submarine cable access, satellite distribution, and the overall strength of its economy and currency mean that it will be the dominant IT economy for years to come.
Nonetheless, South Africa is slipping behind its neighbours in several important measures, Hahn adds, partly because its growth rate cannot keep pace with that of less mature markets where technology penetration is far lower, but "education inadequacy" and regulatory uncertainty are areas that South Africa must address to advance growth.