Can Africa replicate Silicon Valley? History shows not

When the first mobile licences were contemplated in the early 1990s, neither politicians nor prospective mobile operators themselves thought of the devices as anything other than toys for the wealthy. Government was happy to leave cellphones to the profit-seeking private sector, while keeping tight control over landline infrastructure. Contrary to everyone’s expectation, including that of the mobile operators, handset sales did not peak at a million or so rich people. They extended to every corner of society, and prepaid plans made cellphones affordable to almost everyone.

According to the International Telecommunication Union, there are 6.8bn mobile subscriptions in the world and 89% of all people in developing nations have access to a mobile telephone. Fewer people have access to clean drinking water and sanitation, the most basic of government-provided services.

This technology penetration has led to direct improvements in people’s lives, without government intervention. One famous case study published in 2007 by the journal Information Technologies and International Development documented the use of mobile phones by 187 of the poorest people from the fishing industry in Kerala state, southern India. Mobile phones enabled the industry to better match fishing boats to under-supplied markets, according to the paper written by Reuben Abraham, at the Indian School of Business in Hyderabad. Consumer prices declined, but more efficient transport and less wastage of highly perishable fresh fish led to lower costs, more stable prices and higher profits.

No politician would have said (or indeed did say) they were going to help make fishers more profitable by making prices go down. No bureaucrat could plan the innovation that made this happen. It all came from the people who had a specific domestic need and the entrepreneurs that supplied it. All the government did was get out of the way and permit it to happen.

Bureaucrats, get out of the way

Conversely, South Africa’s government liberally subsidised an effort to develop an electric vehicle called the Joule. The plan was not only to compete in the global market for such cars, but also to develop a lithium ion battery industry that would support it. The concept was sound; after all, battery technology is in dire need of a breakthrough. But it is not something that will happen just because government throws barrels of money at the problem. The product was late to market, uncompetitive, and failed. The putative battery factory never even got to the sod-turning ceremony.

Factors such as a healthy venture capital ecosystem with a high-risk appetite can stimulate entrepreneurship. An attractive environment for living and raising children is another. This is why the Silicon Cape initiative, a technology networking group in South Africa’s Western Cape province, founded by entrepreneurs Vinny Lingham and Justin Stanford, is showing some success: the region appeals to wealthy investors and aspiring entrepreneurs alike. But core to its success is that it is not government-led. No politician can afford to take a high degree of risk with enough public money to replicate Silicon Valley’s success. They would be hounded out of town after “wasting” money on failures like the Joule.

The view that entrepreneurship can be controlled, planned and stimulated is deeply mistaken. It wastes political energy and fiscal resources. Africa cannot afford grandiose plans by politicians to create the next Silicon Valley in every likely-looking hot spot. Just as in Silicon Valley, Africa can only rely on its people, their unique needs, the connections between them and private capital with a high-risk tolerance.

Entrepreneurship is not something that a smart bureaucrat with enough political will and deep pockets can create. Free people can, but only if bureaucrats get out of the way and stop punishing them for their business failures.

Ivo Vegter is a South African columnist writing on economics, politics, law and the environment. In 2011, he was a finalist for the prestigious international Bastiat Prize for Journalism, which recognises work that promotes a free society.

This article was first published by Good Governance Africa