Africa’s new growth sector in Information Technology

A new IT study states that Africa might be the new growth spot when it comes to Information Technology. The study was done by AT Kearney, which indicated that seven African countries are among the top 50 global outsourcing destinations for IT services, also known as offshoring. Egypt, Ghana, Mauritius, Tunisia, Morocco, South Africa and Senegal are among the preferred destinations.

A well trained but less paid English or French speaking populations … An attractive offer that has continued to magnetize Western companies to outsource their IT services.A study published in April 2010 by an American consultant for Strategic and International Studies, AT Kearney shows that in 2009 seven African countries were among the world’s top 50 destinations in the offshore business.

Although Asia continues to top the list with it usual trio; India, China and Malaysia, the African continent is rising in the rankings. Off-shoring is primarily intended to tap into cheaper iT services and support, contact centers, and back-office support abroad.

Criteria

Data taken into account each year by AT Kearney to establish this classification include three major categories: financial attractiveness, people skills and availability, and business environment.

The 50 countries were evaluated against 43 measurements across those three major categories. And because cost advantage is typically the primary driver behind outsourcing decisions, financial factors constitute 40 percent of the total weight in the index, with the other two, i.e.; people skills and availability, and business environment, taking 30 percent each.

The accumulated total of points reveals the attractiveness of a country. Egypt, which gained seven places, is ranked sixth in terms of international attractiveness, Ghana is ranked number 15 after jumping twelve places, Tunisia, with a nine point gain, is ranked 17th this year, while South Africa takes 39th position. Senegal, a new entrant, jumped 13 places and takes 26th place.

Ghana, Egypt and Senegal, which are among the top The sub-Saharan countries with low labor costs, are attracting more and more contact centers. And to deal with the time difference between them and their western counterparts, contact centers adjust their working hours to correspond with countries such as France, the United Kingdom, the United States, etc.

Labor costs

According to a study by APIX, Senegalese agency for the promotion of investment and capital construction, the average salary in the west African country is 308 euros per phone operator per month, against 433 euros per month in Tunisia and around 458 euros in Morocco.

Senegal, with a 40 percent unemployment rate, is endowed with a far more available work force than its French speaking competitors in North Africa (15% in Tunisia and 20% in Morocco).

As a result of the growing performances of African countries outsourcing towards them are also growing. In Tunisia, contact centers are among the most important sources of employment. In Morocco, the number of contact center employees has increased by 10 in 4 years.

The Dell Casanearshore “call center”, a brand-new facility at “cité de l’offshoring,” alone employs over 1800 people. The U.S. computer manufacturer’s sale and after-sale services for southern Europe are managed from Casablanca.

The offshore market, which accounts for 55 billion dollars, according to Professor Leslie Willcocks from the London School of Economics, is an important financial resource for the African continent.

But the downside is the offshore market’s contribution to the increasing wage gap between northern and southern countries, as it spearheads the race for low labor costs in countries that need to attract more investments to deal with their massive unemployment rates.

There is nowhere to go but up with this new emerging sector. Yes there problems between raising income gaps, but that is not unsual when a country is trying to transition to a more productive and high value added economy, especially when the majority of African nations depend on natural resources for economic growth.

China is experiencing the same problem. Income inequality is what worries the Chinese Communist Party.  The United States as a young emerging nation went through the same process during the 1800’s.

More investment is needed in broadband infrastructure across the continent if Africa doesn’t want to be left behind in the global economy. Below you get an idea of the lack of  internet connectivity across the region.

East Africa begins Economic intergration following European Union model

Kenya, Tanzania, Uganda, Rwanda and Burundi will follow Europe and start an economic union based on the European Union model. The creation of an economic entity is in the early stages.

Members of East African Community will formally begin Thursday the process of integration.  Despite some reservations from smaller countries, analysts believe the union will greatly benefit the region.

The Common Market Protocol – signed last November by members of the East African Community – will take effect officially on July 1, as the region moves closer to the dream of a politically and economically unified East Africa.  That’s when Community members Kenya, Tanzania, Uganda, Rwanda and Burundi will open their borders for the free movement of goods, services and citizens throughout East Africa.

The protocol is part of a vision that would see the nations eventually form a federated state, complete with a single currency and unified foreign policy.  While critics of the East African Federation are skeptical such a union can be achieved by the proposed date of 2012, the integration set to begin in July has been heralded as an economic and political achievement.

Kenyan economy analyst Robert Shaw says the Common Market Protocol makes perfect sense for the region.

“In the global world a single country, and particularly a single African country which has a very small economy, it makes sense for there to be a greater bloc, for two reasons,” says Shaw.  “One: the potential for trading within that bloc is great, and we have seen it.  We have seen it even with the tentative moves that have gone so far.  The increasing trading between Kenya, Uganda, Tanzania, to a lesser extent Rwanda, etcetera, has increased year after year.  It makes sense.  The second point there is that the bigger your market, that is much more attractive for investors, locally and internationally.”

The Protocol also will eliminate the vast amounts of restrictions and regulations often required to do business in the region.  In addition to the elimination of trade barriers and border taxes, citizens of East Africa will be able to freely relocate within the community, bringing education and expertise where they are needed most.

But not everyone is optimistic.  Critics of the union say that Kenya, the region’s largest and most dynamic economy, is likely to reap the majority of the benefits.  In smaller countries, such as Rwanda and Burundi, there are fears that Kenya’s larger businesses will push aside the local economy.

According to Shaw, these fears distort the larger picture.

“Kenya is a hub, it is the hub and it will benefit a lot,” says Shaw.  “At the same time, do not underestimate the potential of benefits for other countries.  Kenya has a lot of human resources and skills.  That can only benefit the region as a whole.  To think that Kenya is, and this is one of the fears by the other countries, that Kenya is going to get the lion’s share of the benefits is a bit misplaced.  It will benefit, but the other countries will benefit in many different ways as well.”

Despite the regional optimism, it likely will take some time before the borders are opened.  According to Shaw, the borders in East Africa are notoriously tight and the elimination of red tape will not happen overnight.

The East African Community now will look to consular integration, which could see the bloc adopt a common immigration policy within the coming year.

The new market is already attracting attention.  Turkey’s ambassador to Kenya announced his country would establish an Export Processing Zone within the East African Community to take advantage of the region’s potential.

What exactly is “East Africa” these days? Certainly, the parts of old British East Africa—Uganda, Tanzania (first a German colony) and Kenya. They have trodden very different paths since colonial days. Uganda has had coups, turmoil under Milton Obote, bloody convulsions under Idi Amin, and long spells of civil strife. Under Julius Nyerere, an incompetent or saintly authoritarian (depending on who you ask), Tanzania strove for a socialist ideal that kept its people plodding and poor but united and peaceful. Kenya was more dynamic and worldly, but more violent and corrupt. It may now be the least stable of the trio.

In 1967 these three founded the East African Community (EAC) with a view to federation. Little progress was made; the EAC collapsed in 1977, to general rejoicing among Kenyans, who reckoned they were carrying the other two. In 1999, however, the project was revived. In 2007 it even expanded to include Burundi and Rwanda. Many still doubt whether a European Union-style federation can ever be achieved in the region, despite the EAC`s promise to create a single currency by 2015 and to make a customs union work. But recent developments have made further integration more likely.

Tanzania has usually been the one to put the brakes on the EAC, fearing it will be overrun with land speculators and better-educated Kenyans and Ugandans. But Tanzania`s president, Jakaya Kikwete, now says his people should stop moaning and prepare for a common market. The head of Tanzania`s tiny stock exchange reckons there could be a single east African version in a few years. Work is already under way to create a common trading system.

If Tanzania has lagged behind, Uganda has usually encouraged the federal idea, not least because its president, Yoweri Museveni, has long nurtured a wish to end his career as the EAC`s first president.

Paul Kagame, president of tiny, landlocked Rwanda, is also keen to press ahead. His recent rapprochement with Congo, Rwanda`s vast, ramshackle neighbour to the west, was made in the hope of increasing trade via the fledgling EAC`s market. He is now intent on adding value to Congolese raw materials and shipping them to the world market through the EAC, too.

Congo`s government seems willing. China, by some counts the biggest investor in the region, plainly wants Congo`s timber, iron ore and other minerals shipped across the Indian Ocean via the EAC.

For that and other reasons, Kenya, for its part, wants to build a new deep-sea port near the island of Lamu, close to the border with Somalia. Kenyan officials have so far brushed aside concerns for the mangrove swamps and nearby marine sanctuary. They say the port, refinery and new city will be built on the mainland to preserve Lamu`s heritage and tourist industry. The hope is for roads and railways to Mogadishu, Addis Ababa and Kigali and a pipeline bringing in Ugandan and south Sudanese oil. Funds would flow in from Kuwait and other Arab investors. This would link up east Africa as never before, and a single currency and a customs union would then make much more sense.

And why should an East African federation stop with the club`s existing member countries? If defined by the area in which the lingua franca of the Swahili language is used, the range of lorries heading out of the Kenyan port of Mombasa, and the magnet of Nairobi as a hub, east Africa spreads into Ethiopia and includes a chunk of Somalia, a swathe of east Congo, a strip of northern Mozambique and all of southern Sudan, which could become an independent country in 2011, if its people vote in a promised referendum to secede.

The EAC already has 126m people. If it expands, it could add as many as 120m more to that number, making it more than twice as populous as Africa`s 28 smallest countries combined—enough, its backers argue, to make a bigger EAC very attractive to foreign investors. The EAC says it would negotiate better deals with the rich world than individual African countries can.

Local businessmen are still sceptical. They argue that the EAC`s dream of federation could be botched by a trade row, tribal violence or strangled at birth with red tape by venal politicians and bureaucrats. So the mood is mixed. Could east Africa take off as a regional trading bloc? Or will the idea disappointingly fizzle once again? An early test of the EAC`s earnestness will be to see if it can get its member countries jointly to look after Lake Victoria, a common resource that scientists say has been overfished and poisoned by the sewage running off its overpopulated shores.