Military Contracts and African Innovation, a Potential Origin Story?
A topic largely avoided in the boardrooms and startup hubs of Silicon Valley is that the region got its start because of massive military contracts during the cold war.
This is perhaps not quite as romantic as images of plucky entrepreneurs toiling away in garages which, of course, did happen, but largely as a result of the US army’s involvement in the Bay Area.
the government played a major role in launching and sustaining some of the region’s core industries through military contracting
Spending by the Pentagon into microwave electronics, missile, satellite, and semiconductor industries effectively laid the framework for much of the industries situated there today.
In theory, African governments could replicate this military spending program to supercharge technology innovation. If executed with a competitive tender process, increasing spending on military contracts would inject capital into cutting-edge technology startups and potentially spur on a massive spike in innovation in the region.
Naturally, a response to this proposition is that Africa does not find itself in the same circumstances as 1950s America. Beyond vast cultural, economic, geographic differences, there’s no Cold War toward which governments can focus military spending.
But maybe there are some interesting parallels to explore given current events.
Africa on the frontline
Let’s assume COVID is Africa’s Russia.
In fact, there are many parallels to be drawn between the virus and the Soviets last century; the virus silently stalking the continent is a common enemy amongst all countries, and African countries currently find themselves in a war zone state trying to fight it.
Beyond this individual pandemic, Africa is forecast to be at the front lines in the age of viruses that many scientists argue is upon us. With the effects of climate change altering animal migration patterns (especially the grim-reaper itself, the mosquito), it’s more than likely that we’ll start to see an increase in the occurrence of viruses never seen before, and for which we are ill-equipped to deal — a significant portion of these will have mortality rates far greater than COVID.
A warming world is expanding the range of deadly diseases and risking an explosion of new zoonotic pathogens from the likes of bats, mosquitoes, and ticks
Perhaps, then, the program is still the same, but the focus is different?
Whereas America financed military innovation, African governments could collectively finance healthcare spending.
In fact, while America embarked on a self-financed initiative mid-way through the last century, Africa may not necessarily need to front the cash. Given the vast economic advantages of early containment, it makes sense for developed countries to finance, or at least vastly subsidise, healthcare technology research. In the same way that corporations tend to un-cap cybersecurity spending after a hack, healthcare spending could see explosive growth following the current pandemic. It would make sense to streamline that capital into Africa and to entrepreneurs on the frontline.
Furthermore, if we are going to bring the fight to the virus, given the anticipated African source, then it also makes sense to finance African entrepreneurs who are living and working on the continent as opposed to guys back in Silicon Valley who don’t interact nor understand the nuances of the healthcare problems in Africa.
A medical doctor in the health-tech space I spoke to recently highlighted this problem by pointing out how
Silicon Valley healthcare technology does not necessarily transfer well into Africa without significant changes because the priorities are normally all wrong for the African market
This misalignment causes a significant misallocation of capital.
While one could argue that the free market should take care of this, it seems that an awful lot of opportunity is wasted simply because African founders are not being backed.
Opening up markets
Conversely, this initiative does not solely require an upending of national budgets; rather, a liberalisation of healthcare markets to encourage African innovation could prove immensely effective.
To be clear, I’m not advocating for a mad free-for-all in the healthcare system. But decreasing at least some of the barriers to trade and other restrictions on incumbent and prospective businesses could massively help spur innovation in the sector.
In fact, we’ve consistently seen a correlation between innovation and liberalisation in the healthcare space. Take, for example, (while acknowledging the differences discussed above) the eye correction market in the US. The market comprises cash payments meaning that insurance doesn’t cover the surgery’s cost; neither does the government. It’s as much a free market as we’re going to get. As a result of this, we’ve seen, over the last 50 years, massive advances in the technology used and an enormous reduction in the price. In some case, you’re now looking at a recovery time of a few days and a price tag of a few hundred dollars per eye.
The industry has seen this downward pressure on prices and upward pressure on innovation because it’s a free-market, i.e. the only way of getting business is to offer a superior product than your competitors when factoring in quality and price. While this particular example has been drawn from the US, the economics arguably should still hold for African markets to the extent that liberalisation, if maintained under the right conditions, fosters innovation and a decrease in healthcare cost.
Looking East
African economies could also cultivate innovation by mirroring South Korea’s subsidies program and efficient foreign aid allocation during the last century.
In 1957 South Korea shared a similar GDP with Ghana, but in a span of thirty years it managed to accelerate its growth exponentially and officially joined the OECD in 1996
(Sial 2018)
This injection of capital was, of course, received following the devastation of the Korean war and, while not provided to equip South Korea against its Northern aggressor, coupled with liberal markets, empowered Korean entrepreneurs to rapidly grow to such an extent that they become a giver of foreign aid my the mid-90s.
Here, the government provided subsidies to foster market participation and growth. Once businesses could stand on their own two feet, they slowly started to remove the subsidies, creating an environment that benefited from competitive market forces but was kick-started by government spending.
Collaboration
Nevertheless, whatever route is pursued by governments in Africa will likely find success at the intersection between public and private actors. While a stimulus package from governments, African or not, would, of course, spark activity across the continent, progress may be short-lived because, as explored in a previous article, of Africa’s insufficient data infrastructure, which directly impacts a startup’s ability to scale beyond seed stage in the vast amount of cases.
It’s also instructive to highlight that Korean aid was not received into the country and just dolled out willy-nilly.
Rather, the South Korean government took steps to ensure efficient capital allocation.
Post-war Korean economic development is, in part, due to well-managed development aid
Such steps would have to be taken by African governments to be seen as an investment prospect by global investors fighting against viruses.
Thus, it’s absolutely critical that any attempt to supercharge healthcare technology to effectively combat and preemptively address viruses occurs in tandem with government and privately backed initiatives to enhance data generation, processing, and governance.
It’s also important to note that the strategy here needs to be entirely adaptive to the situation at hand.
The principal enemy is orthodoxy: to use the same recipe, administer the same therapy, to resolve the most various types of problems; never to admit complexity and try to reduce it as much as possible, while ignoring that things are always more complicated in reality.
(Albert O. Hirschman 1998)
African governments cannot take South Korea as an exact game plan and implement it without considering the vast contextual differences. Unfortunately, the African tech scene does tend to see this occur with Silicon Valley transplants eagerly trying to duplicate their North American success on the continent, only to be met with a market not so similar in behaviour, trends, signals, and basically any other metric. While free-market fans can argue that the free market takes care of this in the long run, and it’s perhaps not a bad idea to encourage these tech companies into Africa, to fight something like viruses is not necessarily something you want to leave entirely up to the invisible hand.
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