Soo Twitter created an Africa office ,how should your tech company think about your Africa move
On April 12th, Jack Dorsey the founder and CEO of Twitter announced that the company was going to have a physical office on the African continent and their HQ was going to be located in Ghana, West Africa .
This is has been met with excitement and expectation.
Twitter’s reasons ( well at least the reasons they put on their blog ) are, “As a champion for democracy, Ghana is a supporter of free speech, online freedom, and the Open Internet, of which Twitter is also an advocate. Furthermore, Ghana’s recent appointment to host The Secretariat of the African Continental Free Trade Area aligns with our overarching goal to establish a presence in the region that will support our efforts to improve and tailor our service across Africa”
In the last couples of years other big tech companies have also set up across the continent
Facebook – In 2015 Facebook opened its first headquarters in Johannesburg, South Africa
Google – In 2019, Google opened its first artificial intelligence lab in Accra, Ghana.
Alibaba Group – In November 2019, Ethiopia and the Alibaba Group inaugurated a global trade platform.
Amazon – In 2015, Amazon opened its first Amazon Web Services (AWS) office in Johannesburg.
Microsoft – Microsoft launched its first Africa Development Centre (ADC) in 2019 and as well as opened Africa’s first hyper-scale data centres in South Africa.
There many think pieces on the Twitter move on the “why’s” so I decided rather than write another think piece , I would have a more general conversation into what factors global tech companies should looking at when deciding where on the African continent they should have a physical presence .
Where should you create your first Africa Office?
Ease of Doing Business
I started out by reviewing the World bank ease of doing business list and then concentrating on the top 15 African countries on that list, my argument is as a base line ,these 15 ranking countries are best suited for tech companies who want to create a presence or an office on the continent.
The World Bank ease of doing business list is a “series of annual studies investigating the regulations that enhance business activity and those that constrain it. It provides quantitative indicators covering 12 areas of the business environment in 190 economies. The goal of the Doing Business series is to provide objective data for use in designing sound business regulatory policies and to encourage research on the important dimensions of the regulatory environment for firms.”
|
Economy |
globalRank |
Rank within group |
|
Mauritius |
13 |
1 |
|
Rwanda |
38 |
2 |
|
Kenya |
56 |
3 |
|
South Africa |
84 |
4 |
|
Zambia |
85 |
5 |
|
Botswana |
87 |
6 |
|
Togo |
97 |
7 |
|
Seychelles |
100 |
8 |
|
Namibia |
104 |
9 |
|
Malawi |
109 |
10 |
|
Côte d’Ivoire |
110 |
11 |
|
Uganda |
116 |
12 |
|
Ghana |
118 |
13 |
|
Eswatini |
121 |
14 |
Part of the metric that informs the ease of doing business list is:
- Ease of starting a Business
- Ease of dealing with Construction Permits
- How easy is to to get Electricity
- Ease of registering Property
- Ease of getting Credit
- Protecting Minority Investors
- Ease of paying Taxes
- Trading across Borders
- Enforcing Contracts
- Resolving Insolvency
So at the very least global tech companies have a starting point of a list of countries that are easier to do business in overall within Africa
Technology Regulatory Environment
Even within these 15 top countries there are still nuances , one of the key indicators for making a presence choice is the regulatory environment
Rwanda which regularly tops the ease of doing business list for Africa Rwanda offers many interesting fiscal and non-fiscal incentives for national and foreign investors.
As a standard there is no minimum capital requirement for market entry, and “newly formed small and medium-size enterprises are exempt from paying the trading license tax for their first two years of operation”.
Amongst the other fiscal incentives are
- Zero corporate income tax for companies planning to relocate headquarters to Rwanda
- 15% preferential corporate income tax for strategic sectors i.e. energy, transport, affordable housing, ICT and financial services.
- Accelerated depreciation of 50% for key priority sectors i.e. tourism, construction, manufacturing and agro-processing
- Exemption of capital gains tax
- Seven-Year corporate income tax Holiday for large projects in strategic sectors i.e energy, exports, tourism, health, manufacturing and ICT
- Repatriation of capital and assets
On the flip-side Africa in the past few years has been plagued with Internet blackouts, and regulatory environments that have not been favorable to the tech companies.
Kenya early on in 2021 introduced its own 1.5 % Digital Service tax , which to be honest is not new , many countries like of Austria, Belgium, Czech Republic, France, Hungary, Italy, Poland, Slovenia, Spain and UK all have digital service tax regimes.
However the Kenyan Digital service tax is wide and pervasive, it targets every single platform that ‘might’ sell to a Kenyan .It requires non resident digital platforms to have a tax representative locally to execute tax payment This differs from the EU tax which primarily targets big tech i.e non-resident companies that exceeds €7 million in annual revenues from digital services in a European Union member state, and has more than 100,000 users who access its digital services in a member state in a tax year, or it enters into more than 3,000 business contracts for digital services in a member state in a tax year.
The digital space is definitely undertaxed especially from foreign big tech organizations but care must be taken so that local startups do not get killed in the process
Ghana Ministry of Finance has also announced an e-commerce tax, even though the details are not fully know it seems to be in the same vein as the Kenyan digital service tax
Uganda , one of the countries in the top 15 of African ease of doing business , in 2018 introduced a tax that asks internet users to pay $0.05 per day to access the internet , this was to reportedly curb online gossip. Its has been shown however that all that law has done is to create another barrier to internet use in the country . Nevertheless Facebook has continued to invest in the country by working with partners to built an almost 800km of fiber backhaul in Northwest Uganda to enable an 40% increase in network coverage in that area .
These stories are meant to point out the opportunity of African despite small regulatory infractions across the continents easiest places to do business in.
Numbers and Access to Market
Another metric to consider, is which county is closest to the large numbers of potential client, so even though Nigeria is not in the top 15, a good number of global technology companies have created regional offices there because of the 201 million population which makes 1 in every 5 Africans a Nigerians.
Utilities: Electricity/Internet
Even though over 640 million users have no access to electricity , Africa has a 40% acess rate of electricity which is the lowest access rate in the world . Despite that over 162 GW electricity generated, over 130 million on-grid connections and over 75 million off-grid connections. It is important to understand in wanting to do business in Africa , global tech companies should consider including generators and off grid options in their cost.
According to Communication Authority of Kenya “the most promising African country when it comes to internet speed is Kenya. It has the fastest internet connections compared to its African neighbors with an average connection speed of 12.2 Mbps, having an impressive YoY change of 67% in 2017[6]. Not only that, but Kenya’s total available bandwidth jumped from 2028 Gbps end of 2016 to 2906 beginning of 2017, with a % change of 43.28%”.
According to business daily Africa “Somalia has the cheapest data in Africa where 1GB of data costs Sh53 on average from Sh662 last year, it is seventh in the world. In East Africa, Tanzania is the leading country with citizens paying Sh78 per GB for the service,” the report states.
It is important to understand the coverage and reach of any of the countries that are being investigated for a physical location
Timezone Alignment
Most of the 15 to African countries in the ease of doing business list , are situated in East Africa and West Africa which lends itself to the European timezones .
Tech Talent Availability
According to the ILO Africa is the youngest continent with an average age of 19 years, and according to the World Economic Form ‘ Every year for the next three decades, 15-20 million increasingly well-educated young people are expected to join the African workforce’
So first and right off, Africa does have the right demographic with the most academically educated generation the continent has ever had .
Local tech talent has also taken to doing remote work for clients outside the African continent leveraging on the many available remote work platforms.
Local developers have figured that considering the low wages on the African continent , remote work is a better way to make an income or augment current income
Companies like Andela have taken advantage of this and are providing platforms where local developers are hired out to foreign companies for a cheaper cost than in most western countries.
Where every you chose to create an office in Africa, understand there will always be opportunity and a learning curve