The race to become the new India: East Africa plunges into BPO

East Africa is hoping to turn itself into an outsourcing hub with a series of initiatives designed to make it more appealing for foreign businesses. But does the region have enough to offer?
Written by Hilary Heuler, Contributor

Like tens of thousands of young Ugandans every year, 26-year-old Flavia Aliteesa graduated from the IT department at Makarere University with little hope of finding a job. But within a few months she had landed a position doing back office work including data entry for companies as far afield as the US and UK. Her employer, Techno Brain, provides business process outsourcing (BPO) services from the Ugandan capital, Kampala.

It isn't the kind of job graduates normally aspire to, but Aliteesa considers herself extremely lucky since some of her classmates have been unemployed for years. "I was given an opportunity to start working, otherwise I would have been seated back home doing nothing. At least it has given me a sense of independence since I earn and I can do something on my own," she says.

By creating more BPO jobs like these, East African governments are hoping to chip away at soaring unemployment rates among graduates, as well as bring in more revenue. It's an ambitious goal, but poor digital infrastructure and a lack of unique capabilities may make it difficult for the region to keep up with more traditional BPO destinations such as India and the Philippines.

Although Kenya can boast of a larger BPO industry, the Ugandan government has been more enthusiastic in promoting it, says Vinod Marar, general manager of Techno Brain, which has offices in both countries. "Uganda is growing really fast, especially with a lot of support from the government sector," he says.

Techno Brain and two other BPO companies enjoy free office space in Kampala, at a BPO incubator set up by the Ugandan government last year. They were also provided with computers, internet and, at first, even free electricity to help their businesses get off the ground. Nor has staffing been a problem, since the government trained around 500 graduates in IT and BPO-related skills last year, and plans to train an additional 3,000 over the next three years.

What Uganda sees when it looks at the BPO industry is jobs, says James Saaka, executive director of the National Information Technology Authority (NITA). The country has a fast-growing population and soaring rates of youth unemployment, and Ugandan leaders see great growth potential in the IT sector. "Let the young people be employed and get them off the street. Let them get the experience they need, and tomorrow they will become the entrepreneurs," Saaka says.

Rogers Karebi, head of the Uganda BPO Association, points out that the industry could also bring significant revenue to cash-strapped East African governments. "What I am told is that in the next few years, the global BPO market will hit over $1tr," he says. "For us to be able to position ourselves strategically, to get a share of that cake, could be a very big benefit to our economy at large."

Similar to India

East Africa and India do share some of the characteristics that have propelled the latter to the top of the BPO industry. Both have English-speaking populations, and the cost of labour is relatively cheap. East Africa has the advantage of time-zone proximity to Europe, and tens of thousands of university graduates badly in need of work.

In addition, the appeal of the more traditional BPO countries is waning, Karebi says. "Quite a number of firms in India, Asia and the Middle East have stepped up their prices, so the cost of outsourcing to the initially indigenous BPO destinations is on the rise. Quite a number of firms in the demand market are actually looking for alternative places to outsource to," he says.

But there are drawbacks as well, not the least of which is the high cost of internet access in East Africa."Right now, we find that, on average, we are paying about $708 per megabyte," Karebi says. "When you go to India, it's close to $50. You cannot compete at that level."

Plus, says Marar, there's the issue of reliability, and the fact that the whole of East Africa is connected using a single fibre-optic cable system running under the Indian Ocean. "If that goes off, we don't have any backup options at this point in time," he points out, since satellite is too expensive for a business.

The Ugandan government is working hard to offset these difficulties. For several years now it has been laying cable across the country to build a fast, reliable broadband backbone. The NITA's Saaka says the organisation is close to signing a contract with ISPs that would let the government buy cheaper broadband in bulk, then channel it to the public sector and certain target industries, including BPO companies. Market rates for internet are falling all over East Africa, says Saaka, and it should just be a matter of time before countries like Uganda become more competitive.

Different enough?

But it still might not be enough to make East Africa attractive to international companies looking to outsource. Stephan Manning, assistant Professor of management at the University of Massachusetts, who studies offshoring and BPO, says that East Africa doesn't seem to have anything unique to offer.

"Most governments try very hard to provide conditions for business to grow, like, for example, IT infrastructure, some tax incentives and some industrial parks. But this is not the way you're going to differentiate yourself from others," he says.

"You need to provide services that are very standardised, and high in demand globally. But these services need to be distinct enough so that they don't enter price competition," Manning says. "In Kenya, if you provide English-speaking call centre operations, then you do nothing different than the Philippines or India, and there's no way you can compete on costs."

Instead of trying to establish itself as a global BPO destination, he says, East Africa should focus on the regional market, where local BPO companies don't come into direct price competition with Asia. This is how South Africa has built its BPO industry, Manning says. "The regional market is growing. In terms of regional markets, how much can particular countries provide? That's becoming the more interesting question."

So far the handful of BPO companies operating in Uganda have been serving primarily the Ugandan market. They all say they have plans to expand; it's just a question of how far.

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