Dimension Data makes a bid for Access Kenya

Dimension Data South Africa, a subsidiary of Japanese telco, NTT Docomo, has made a bid for Access Kenya, a Kenyan ISP listed on the Nairobi Stock Exchange. Details here (via Reuters). This is interesting for a few reasons

Access Kenya has been struggling

Safaricom has been growing their corporate data offering (after their purchase of Onecom) and have systematically gone after Access Kenya’s key market (the corporate data market). The writing was on the wall for Access Kenya (and perhaps other ISP’s) after the Kenya Bankers Association gave the interconnection contract for the cheque truncation system to Safaricom (more here).

Best Exits in EA are still through M&A’s

There has been high activity in the M&A space in East Africa, but almost no listings with only two IPO’s so far (Access Kenya & Safaricom). If the DD/AK deal goes through, we will be down to one listed tech company (Safaricom has a huge data services business) on the Nairobi Stock Exchange.

  • Internet Solutions Kenya was an aquisition of Interconnect Kenya (link here).
  • Internet Solutions itself is an acquisition by Dimension Data South Africa.
  • Dimension Data got it’s foothold in East Africa by buying ICL East Africa (then owned by Naushad Merali Read more).
  • Dimension Data Group itself was eventually bought out by NTT Docomo.
  • Copy Cat got into Tanzania by buying BMTL.

Revenue is still in System Integration & Infrastructure

The system integration sector does not get too much praise in Kenya, but there is quite an amount of money to be made in that space along with traditional IT infrastructure.

  • Zuku has been able to raise a further 57.5 M USD (more here).
  • Safaricom is currently rolling out it’s fiber network (the Safaricom Digital City project has a budget of 10B KES more here) and has had it’s data revenues grow to 4B KES (over the first half of FY2013)
  • Even with all the issues plaguing it, KDN was able to find a suitor in Liquid Telecom.
  • In the system integration space, you have Copy Cat Limited which closed last fiscal with revenues hovering around 65M USD and they have a target of 100M USD in FY2013 (more here), Seven Seas Technologies now rolling out in Zambia, Ghana and Nigeria.

Interesting times

Dimension Data is not yet out of the woods. Whilst they are offering a significant premium on Access Kenya’s trading price as of Friday the 3rd of May 2013, there may be other offers for Access Kenya. Whatever the outcome, it will be interesting to watch (and possibly lucrative for current Access Kenya shareholders).

ICT Policy Incongruence in Kenya

Kenya has made great strides in ICT in the last eight odd year.  We have moved from being what can only be considered 19th Century living (poor electricity supply, no internet connectivity, barely any telephone access etc), to being one of the regional ICT innovation hubs, with companies like Safaricom (Kenya’s telecommunication juggernaut, which is one of 4 companies in Kenya to have revenue of USD 1B + [KenolKobil, KPLC & Kenya Airways being the others], they are behind M-Pesa.), Ushahidi (who build crisis mapping software), the iHub, multiple incubators and more co-creation facilities. We have the capacity to innovate. We have a great developer base in Kenya. We have all it takes to be successful…

Software development is still not lucrative

Given the state of the market, this seems counterintuitive, but observe the numbers…. Which are our largest system integration outfits?

  1. Seven Seas Technologies –  One of the largest indigenous System Integrators. Revenue? As of 2010, 24 Million USD (with today’s exchange rate, 2.14 Billion KES, read more).
  2. The Copy Cat Limited -The oldest local System Integrator, they have revenues of over 50 Million USD (according to their website), with the current exchange rate, 4.45 Billion Kenyan shillings).
  3. Dimension Data East Africa  – Though it’s not Kenyan, strictly speaking, it is of Kenyan heritage and still partly owned by the Sameer Group. They went over the 1B KES revenue mark a few years ago.

Now, these are very well run companies, the developer community would do well to learn from them, however, my issue is with the government.

The government is the single largest customer for ICT products and services in the country (for a while the telco’s were ahead though, but given the recent USD 117.9M grant (with the current SDR Conversion rate) which translates to roughly 10.5 B KES, given the current USD/KES conversion rate). The governments policys should look internally for services and products to use before looking externally, especially in manufacture. This is because the government has a greater responsibility that transcends the need to increase uptake of ICT. The government has a duty to ensure that:

  • Our tax money is used to employ as many citizens as possible.
  • Government contracts are given to as many citizens as possible.
  • Fix our balance of trade.

Now, we have many multinationals setting up shop in Kenya (Oracle, Microsoft, EMC, Cisco etc etc). We have a large corporate market who should have no qualms buying imported product, their responsibility is to balance their books, source of products notwithstanding. However, this should not be the case with the government. The government is large enough to sway ICT trends.

Simple example. If the government standardizes say on FreeBSD for it’s server operations, all application vendors who want to deal with the government will have to port their application to FreeBSD or stand to lose business from the government. Simple enough. Given that the government is one of the largest employers, demand for UNIX administrators will necessarily increase (especially those with a bias towards FreeBSD). This will have a knock on effect because you will now increase the number of FreeBSD resources available in the market, making FreeBSD a viable server OS for corporations as there are enough skilled resources in the market to support it. The System Integrators will also ensure that they have adequate resources to maintain FreeBSD as they risk losing support and maintenance contracts if they are unable to competently manage the FreeBSD servers. Why is this important? Because we don’t have to spend a dime on FreeBSD. It’s free. We are paying the WorldBank loan with interest. It’s our tax money and the government has a duty to be as prudent as possible with the funds.

This plays out on a larger scale when you consider OS purchases, Information Management System (IMS) purchases etc. It’s a market that’s estimated by the Kenya ICT Board (MIS + Software and associated services) at roughly 200M USD. If this money was channeled to the local developer community, the  wealth creation will actually increase interest in the ICT space (it will be a viable career for the best and brightest) and will actually position Kenya to be a software *exporting* nation. I’m not against commercial software. I believe that companies like Oracle, Microsoft etc have many brilliant products that actually merit the government paying for them. All I’m saying is that paying for them should not be the first option. The first option should be the option that increases growth locally, even if it’s slightly inefficient. At the end of the day, whether the government buys an ERP from Oracle/Microsoft/SAP/OpenBravo, the final product is supported by Kenyan companies, with hefty fees paid to the mother companies, we might as well ensure that as much money goes into growing these organizations as possible. When we need to import software we might as well again ensure that the System Integrator who gets the final contract is a Kenyan company. This may be a bit tedious (involving breaking the tender into smaller manageable bits) but again, the government has a duty to grow Kenyan companies and keep as much of the citizen’s tax money internally…

So yes, we may be talking of improving the local dev ecosystem but the policy should actually actively aid the same, not pay lip service to the developer community and local entrepreneurs and leaving them in the dark when they have an actual business opportunity…