The upcoming release of the io, South Africa's first locally-produced smartphone, has been awash in lofty rhetoric. "There's a combination of first and third world in this country. And whether we like it or not, the third-world component is being left behind, purely because they can't afford the technology that is available on the marketplace," says Sagran Pillay, CEO of CZ Electronics, "so we decided to have a look at how we could maybe bridge the digital divide."
CZ has been designing and testing the io for the past year and a half along with Seemahale, its partner telecom operator. Seemahale said in October that it wants the phone "to benefit the communities in which we operate in more than just one way", and that the company would be donating 20 rand (around $2) from the sale of each device to a number of different charities.
Given Africa's hunger for data, locally-manufactured smartphones is inevitable. The vast majority of mobile phones in Africa are still basic or featurephones, but consultancy Informa Telecoms and Media says that smartphone usage on the continent will have increased by 42 percent year on year. By the end of 2014, the company predicts, 34 percent of all phone users will have a smart device. But the question is, will locally-made smartphones be commercially viable?
The io, due to be released in January, is a five-inch Android-powered device that Pillay claims will offer all the functionality of more expensive handsets from rivals like Apple and Samsung. In addition, it has a 2,000 mAh battery meant to last four to five days, a feature designed with Africa's uncertain electricity in mind.
It can also hold two SIM cards, important for consumers used to switching between operators in order to save money. "The phone has been designed, I would say, exclusively for African conditions, and taking into account some of the challenges that were faced by consumers," Pillay says.
But CZ is betting that what will sell its new phones is the cost. At around $250, the io will be substantially cheaper than the highest-end models from international brands, and this is what Pillay is hoping will buyers. Nor is he worried about being undercut by Asian manufacturers.
"I don't see any reason why we cannot compete with the Chinese, at the end of the day," he says, citing a recent study that found that labour costs in China and South Africa are largely comparable.
Pillay also points to the fact that African consumers sometimes distrust inexpensive Chinese imports, but says a local survey found that 40 percent of South Africans would be willing to buy a South African made phone. Plus, he adds, with imported goods, "there is no return path if there is a faulty unit. You have basically just got to throw it away and replace it with something else". In-country manufacturing could provide customers with more of a guarantee.
Made in Taiwan — for now
But Pillay admits that even the io won't be locally-made from the outset. The first phones will be assembled by a company in Taiwan until CZ is able to develop enough local expertise to set up a factory in South Africa. Since CZ already manufactures printed circuit boards, he predicts that could happen as early as April.
The difference between a locally-manufactured phone and a locally-branded phone manufactured elsewhere is an important one, says Thecla Mbongue, a senior research analyst with Informa. Locally-branded phones are nothing new, she says, with companies in Nigeria and Congo Brazzaville already importing handsets designed for the African market. These companies enjoy no advantages in terms of import duties, nor can they easily be sent back to the factory for repair.
It has not been easy for even large manufacturers to establish factories on the continent. Mbongue says that along with labour costs, companies also have to take into account the comparatively high costs of infrastructure and uncertain power supply. She points to Chinese company ZTE's manufacturing plant in Nigeria, which closed in 2007 after failing to turn a profit.
The 'informal' challenge
"They claimed that they couldn't compete against the informal market, and that's something that we have to take into account in all of our countries," she says. This informal sector – illegally imported or second-hand phones, often sold in local markets – represents a hefty share of handsets sold in Africa, says Mbongue, and could pose a real threat to local manufacturers.
But this may not be the biggest challenge CZ faces when its phones go on sale next year. The company claims to be targeting the lower end of the market, consumers who have never owned a smartphone because of the cost. But Mbongue says that with majors like Samsung, Nokia and Huawei offering the most basic smartphones in South Africa for under $100, cost-sensitive consumers are unlikely to choose the io.
"People who will buy $200 phones upfront are people who are part of the middle class and high end in Africa," she says. But wealthy customers might be difficult to attract as well, regardless of the phone's functionality.
"Owning an iPhone is also a status thing," Mbongue points out. "People feel brand-conscious. This entry price is quite expensive for a brand that is not known yet."
Still, CZ's Pillay says the io has already attracted considerable interest both in South Africa and from distributors across the continent. Nor does he think the io will be Africa's only locally-made phone for long. "I believe in the next two to three years there will be more people on the African continent that will be building telephones and tablets, so I would not be surprised to see some other countries coming on-board," he says.
Informa's Mbongue agrees, but warns that success in the African market won't come easily for an unknown company, even a local one. "I would see more a known brand that is already flourishing in another segment launching their own smartphone. That would make more sense." The io, she says, could have a hard time finding its way into the hearts and pockets of its countrymen.