Local ICT Companies

Local ICT Companies, Their Struggle to Survive, Thrive

Be it in business, social or politics, ICT plays a significant role. That’s why several nations are putting in place policies to guide its development. Countries such as India have benefited from a prudent ICT policy. In fact, the Asian country has earned a name for itself as a global power of ICT earning approximately 67Pct of the USD124-130 billion global market for ICT in 2015.
Though much remains to be seen, Ethiopia has been trying to emulate the success of India. It established an ICT park at a cost of ETB2 billion and expanded technology education in several universities.
However, local ICT companies couldn’t function successfully due to challenges related to access to finance, lack of supportive policy framework and users, such as financial institutions, lower interest to buy their software. EBR’s Ashenafi Endale spoke with company CEO’s and consulted government policies to understand what the nation is doing to help local ICT companies grow.

As information and communication technology (ICT) is gradually becoming central to Ethiopian banking industry, the role of foreign companies in providing ICT services is fast growing. For years, the banks have been purchasing ICT services from bidders based in Kenya, South Africa, India, USA and Europe. The services include purchase of data base, software and various applications.
However, the expense of importing ICT products and services is becoming burdensome for many commercial banks. In the midst of this, industry players stress the need to support local ICT companies and attract foreign companies to open offices in the country.
Baheru Zeyenu, CEO of AFRICOM Technologies, a company engaged in ICT asset audit service among others, says banks in Ethiopia currently use less than 5Pct of the ICT products and services they import.
When the equipment malfunctions, which is often a case,“banks spend a lot of money for maintenance since experts and software come from abroad,” he explains. “This reduces banks’ return on investment in ICT.”
AFRICOM was established 12 years ago with ETB30,000 capital. This ISO certified company has grown its capital to ETB600,000. The company has been providing services for several government offices. According to the CEO, it has developed land management systems for Bahir Dar, Dire Dawa and Mekelle cities. It has also installed 52 services for 26 government institutions and developed a payment system, which covers 320 woredas. So far 8.3 million people have been using this payment system throughout the country.
Mulugeta Asmare, president of Bank of Abyssinia (BOA) agrees with Baheru regarding the ever increasing cost of acquiring and maintaining banking technologies. “The cost of branch expansion has become challenging for banks, especially the high office rent and employees salary, [have pushed] banks to invest in technologies,” he explains. But the cost of importing the technologies is also becoming expensive, which will force banks to work together with local companies to reduce operational costs.”
Data obtained from the Ethiopian Revenues and Customs Authority indicates the escalating cost of importing ICT products and services. In the first four months of 2015, the country spent ETB56 million to import software. This is166Pct higher than 2014’s same period of ETB21 million import. The figure, however, does not include expenses on computer programming and IT consultancy.
Despite the increasing cost of foreign purchases, Mulugeta testifies, banks operating in the country have not started experimenting and working with local ICT companies. He attributes the reasons for the lack of skill and capacity among the local companies. “Investment to building the human capital of local companies is needed to utilize cost effective technologies that can be developed and installed [at reasonable cost],” he believes. ‘‘Currently there are even simple applications imported that are shelved at banks, because of the lack of expertise locally. Even though the banks have already started to compete by launching mobile and internet banking as well as automated teller machine (ATM) and point of sale (PoS) terminal services, the industry is still backward in terms of technology utilization.”
Another banker also says that the costs of foreign supplies is huge and becoming uncontrollable. “When imported technologies fail, banks have to pay for the trip and other accommodation costs for the experts sent by Foreign Service providers.” he said.
So far, there is no local company that has got the chance to replace the role of foreign ICT companies in the banking industry. However, few international companies that opened offices in Ethiopia proved that technology can be developed, installed and maintained locally with reasonable rates.
BelCash Technology solutions, a subsidiary of BelCash international based in the Netherlands, is among the few foreign companies that opened businesses in Ethiopia. The company was founded in 2013 by Mountage Diop. Lion International Bank (LIB) and Somali Microfinance Institution joined hands to establish the Company. Belcash introduced HelloCash which enables customers to make transactions in four key areas of financial transactions: deposits, withdrawals, transfers and payments.
Since February, 2015, BelCash has managed to provide these services with the help of mobile phones and agents. Corporative Bank of Oromia also joined BelCash to expand the mobile money service delivery. According to the annual report of LIB published in November 2016, during 2015/16 fiscal year, the total number of agents of BelCash increased to more than 1,200 with over 35,000 customers. ETB36 million worth of transaction were made during the year.
Similarly, MOSS ICT Consultancy (previously known as M-BIRR), is an Irish company founded in Dublin in 2009 and opened office in Ethiopia in 2010. MOSS introduced its flagship project – M-Birr, in 2014. This technology enables clients of micro finance institutions and banks to undertake payments and transfer money using mobile and agents.
According to Mesfin Tefera, business development manager with the company, M-birr has so far facilitated ETB1.5 billion transactions with 600,000 clients. Of these, 400,000 are active clients and the rest are payment receivers of safety net programme in regional states.
“The service has very big demand since it connects every branch in the system and helps to expand financial inclusion by reaching the bulk of the unbanked population in remote areas.” Mesfin said. “This reduces the cost for banks if they were to expand branches to provide services. And the fact that the technology works even in lower telecom signal and charges small fee makes it ideal in countries like Ethiopia.” He explains. “M-Birr is also working with local software developers to launch additional services. Recently M-birr started bus and taxi mobile payment services.”
According to Mesfin, there are many ideas and proposals shelved by many local companies.“Banks have also shelved ICT products and services, because of lack of infrastructure and human capital” he stated. ‘‘[Some institutions] are bringing to us unused software after M-Birr has launched its mobile banking service.”
Despite the effort made to attract foreign companies, industry players say little has been achieved in terms of boosting the capacity of local companies. “For instance, AFRICOM is one of the three companies currently operating in the ICT village,” Baheru noted. “Even though 20 foreign and local companies were registered to house their offices in the park, they could not operate there.”
Ethiopia opened ICT Park in 2015, based on the experience of Bangalore, a center of India’s high-tech industry, to facilitate the growth of ICT in the country. Built at a cost of ETB2 billion on 200 hectares plot in the outskirts of Addis Ababa, the park offers working space with ETB30 per square meter.
Currently, ethio-telecom and the Ministry of Communication and Information Technology (MoCIT) are building their head quarter and a data base in the park, respectively. Although, companies that join the village are expected to start exporting ICT products and software within two years’ time, most of the companies that are anticipated to operate there didn’t even move into the park.
This is why insiders and experts stress that uplifting the ICT sector in general and local ICT companies in particular will make ICT a strategic resource for the country’s economic and social development. It also attracts foreign companies.
The MoCIT says ICT will be a major intervention, modernization and transformation tool during the second phase of the Growth and Transformation Plan (GTP II), which is due to end in 2020. According to a document obtained from the Ministry, this is because ICT is an exponential factor for growth, which provides 35Pct of the inputs to bring economic and social development and employment opportunities.
However, industry players stress that local ICT companies are in a precarious situation. “We are operating with [financial problems], because there is [lesser] demand for local ICT products and services as [major buyers] prefer ICT products from foreign suppliers,” argues Tekesteberhan Habtu, CEO of Cybersoft, a company established in 1996. “We initially rented a four floor building, but reduced that to one as of 2013; we also reduced the number of employees by more than half.”
Tekesteberhan compares the growth of his company in particular and the sector in general with that of India’s. “My company started operations just a year after the Indian ICT sector started emerging,” he explains. “While Indian based companies grew exponentially, local companies in Ethiopia find it difficult to survive. As a result over 130 software developers from my company have left for the USA and Europe.”
According to India Brand Equity Foundation, established to promote and create international awareness on the Made in India label in markets overseas, India is the world’s largest sourcing destination for information technology (IT) industry, accounting for approximately 67Pct of the USD124-130 billion global market in 2015. The industry employs about 10 million workforces. More importantly, it led the economic transformation of the country and altered the perception of India in the global economy.
On the other hand, Ethiopia’s ICT sector contribution to the GDP is insignificant and not yet calculated, according to Tekesteberhan. “The main hindrance for the growth of the sector is lack of finance,” he says. “There is no legal framework to access loans.”
According to a data obtained from the directorate of standardization and regulatory at MoCIT, by the end of 2015 there were 251 licensed software companies.
Tekesteberhan is known for his strong activism and lobbying to convince government to support local ICT companies. He believes that Ethiopia has capable minds for software development. For him, the only thing experts need is finance. “Ethiopian banking industry has no system to provide loans for software developers. They ask for collateral, but software is a mind work. So everybody goes to import the service, as if [the country] doesn’t have skilled professionals here,” he explains.
Certainly, local ICT companies are less likely to access loans in Ethiopia. This is because of the lack of appropriate mechanism to value their intangible assets such as software using internationally accepted valuation methods. In addition, there is no mechanism to provide companies with copy right and neighbouring right certificates. This limits their abilities to get loans against the collaterals of intangible assets.
The other factor stakeholders raise is the lack of partnership policy, which allows institution like banks to purchase ICT products and services with discriminatory procedures. “Bankers raise security issues but they just do not believe in local software developers,” said a software developer, who claims to have developed a number of software for financial and government institutions and couldn’t get his works accepted because the projects have already been given for Indian companies.
“[Most] buyers of ICT products in Ethiopia, especially banks, have a highly biased attitude for local ICT companies. They think customization is the only thing local ICT companies can do,” argues Fikru Woldetinsae, communications manager at Wegagen Bank. “However, because of the highly increasing cost of foreign ICT service providers, the time will come soon for banks to search for local ICT companies,” he anticipates.
Unlike Ethiopia, many Sub Saharan African countries have a mandatory partnership policy in the conduct of international procurement of software and automation solutions. For instance, in Kenya, international procurement is only possible by partnering with local companies in the basis of meaningful value addition and benefit sharing. This isn’t the case in Ethiopia
Unfavorable procurement procedure is also another problem that local companies face, according to Baheru. “Bid documents require track record of five similar implemented projects in the specific area in the financial sector.” Meeting this requirement is usually difficult as most of the local companies are just starting up.
To solve their multifaceted problems, local ICT companies have been negotiating with MoCIT on the establishment of grading system, which is expected to provide detailed information about the companies, primarily on the basis of their specialisations. The grading will also take into consideration their capabilities and proficiency. It will consider factors like customer portfolio, financial, human, structural and physical capitals, which weights 60Pct, 15Pct, 15Pct, 5pct and 5Pct, respectively.
According to the guideline, the grading serves as an objective, standard and transparent mechanism for the government to extend support, – loans, advances, land lease and other supports.
Once the grading is finalised, officials at the Ministry say, it will be an input for a new policy under preparation. 15Pct preference will be given to companies which have a partnership arrangemen with local companies to do 40Pct of projects. EBR

5th Year • January 16 2017 – February 15 2017 • No. 47


Leave a Reply

Your email address will not be published. Required fields are marked *

Ethiopian Business Review | EBR is a first-class and high-quality monthly business magazine offering enlightenment to readers and a platform for partners.

2Q69+2MM, Jomo Kenyatta St, Addis Ababa

Tsehay Messay Building

Contact Us

+251 961 41 41 41