Local funding for ICT’s is the genesis of a Report on ICT (PDF) released by Kenya’s Capital Markets Authority. It was funded by the Rockefeller Foundation and drawn by Strategic Business Advisors (SBA).
The CMA had set up rules for Venture Capital firms, but there has been little uptake despite the offer of 10-year tax holiday – and VC firms operate in the East Africa region, but many are based in Mauritius and other countries. In seeking other ways of enabling ICT’s to obtain local funding in the region, a taskforce was setup (chaired by Richard Bell of Wananchi) – and which comprised 25 people drawn from the government, technology, venture capital, private investment – and featured input from Kenya, Uganda, Rwanda, South Africa and Tanzania.
One of the solutions considered was impact investing which the Rockefeller Foundation has championed as a new asset class that will draw the private sector into making socio-economic investments that solve age old problems.
– ICT’s do not attract local funding in East Africa and while it is easier for large Telco’s to get money, it is early stage firms who require funding the most ($10,000 – $150,000) – this is where most mobile software development firms fall owing to the low barriers to entry.
– Most ICT companies are Small & Medium Enterprises (SME’s) – who face the same challenges as other SME’s – including low collateral, skills, capital etc.
– Investors also face challenges such as difficulty doing due diligence, lack of sector information, red tape (it took 8 years to set up one particular VC firm)- and while there are angel investors, there is no angel investor network
How & why to get local funding into ICT
– Education and policy reforms with insurance, financial, and other investor groups in regards to the ICT sector
– Regulatory changes; easing of regulations for ICT firms to raise funding locally, and encourage more IPO’s. Many firms invest in Asia because it gives clear exit strategy through IPO’s
– Support technology incubation, mentorship and angel networks
– There will be a multiplier effect; once foreign investors observe the investments and returns that locals get, they will probably replicate that ten times over
Will this happen? Will local pension and insurance regulators relax their rules to allow the funds they oversee to be deployed in the risky world of local ICT? These same regulators have spent years tightening the screws to clean up wasteful spending in real estate, and loopholes through which retirement funds were lost.
The report is a start, and it lay out the path to local funding of ICT’s. These investments are very risky as is real estate which insurance, unit trusts, and SACCO’s are edging back in to.