From Shenzhen to Nairobi: What Makes a Global Manufacturing Hub?
My perspective on manufacturing in Kenya starts in China, specifically in Shenzhen.
Shenzhen is a mecca for manufacturing. The device on which you are reading this article was probably made in Shenzhen, or at least contains components made there. The city, home to a multitude of factories large and small, makes as many as 90% of the world’s consumer electronics.
Manufacturing is impossible to avoid in Shenzhen; inevitably someone you know is involved in a factory that makes a product, or the industrial design for one of that product’s molds, or logistics to ship that product, or any other number of adjacent occupations. I remember going out to brunch with friends who would whip out the newest prototype they were working on, and people would leave food on the table to gather around and ooh and ah, like mothers around a newborn baby.
Of course, it is no accident Shenzhen is the way it is. Previously a fishing hamlet, Shenzhen was built into the ‘Tier 1’ Chinese city it is today through decades of intentional and intense investment. As a special economic zone within China, Shenzhen enjoys exceptionally favorable policies for trade and export. Connected by highways and high speed rail and ports to the rest of China and the world, the city is set up for trade. In addition, a multitude of universities are now graduating skilled talent to supplement the laborers who flock from all over China to this city of opportunity.
Recently, I have been traveling to Nairobi, Kenya with Village Capital. In many ways, Nairobi reminds me of China at an earlier stage of development — entrepreneurial, frenetic, ambitious. At first sight, it would seem unlikely for any formal industry to develop here given the ubiquitous corruption, high crime rates, underdeveloped infrastructure, and other challenges. On further reflection, Shenzhen was not so different a few decades ago. Both Nairobi now and Shenzhen then have in common a plethora of small businesses, relative freedom from regulatory obstructions, and diverse young populations.
Perhaps, with the right actions, Nairobi might in fact be a future hub for manufacturing. After visiting the continent, I imagine that many other cities in young and fast-growing sub-Saharan Africa may have similar potential.
Last month Village Capital concluded its inaugural Hardware Africa venture development program, made possible with support from the Lemelson Foundation and DOEN Foundation. Like all Village Capital programs, the entrepreneurs and activities were focused around a “problem statement”. In this case, the problem was: How do you develop a local manufacturing ecosystem that enables African hardware innovators to solve African problems?
Three themes emerged from conversations with these entrepreneurs and the community that Village Capital gathered around them. Each theme represents a serious barrier to the development of a manufacturing ecosystem in Nairobi (and Africa more broadly); yet in each, there are promising signs that these hurdles can be — and are being — overcome.
Theme 1: Hardware startups need the right equipment just to get off the ground.
Hardware is very different from software. Software startups need developer tools, but those are largely accessible anywhere with an internet connection. For hardware entrepreneurs, it can be very difficult to produce a consumer-facing prototype without some very specific machinery, and Nairobi doesn’t always have that machinery available. For example, one startup described how difficult it was to build a simple housing for their mobile wi-fi product (without which, their prototype looked uncomfortably like a bomb).
“We needed to make cases for our prototype, which looked in the beginning like an IED … some metal plates and wires … it looked like it could trigger something.”
— Erik Hersman, co-founder, BRCK
After attempting to build a casing at the University of Nairobi but failing because the machine there could not achieve the right specifications, they resorted to 3D printing. Unfortunately, at that time, there were no locally available 3D printers. As a result, they had the casing printed abroad and ended up paying a total of over US$200, mostly in shipping fees and import tariffs, not to mention adding weeks of lag time between design and prototype. If they had had the right equipment (i.e. a 3D printer of the right specs) available locally, the casing would have cost a tenth of that amount and been available in a few hours.
Is it possible to provide the right equipment to enable local hardware innovations in Nairobi? Gearbox, Kenya’s first open makerspace, has launched to do precisely that. They have a workspace with many prototyping tools (including a 3D printer). Gearbox and other similar emerging makerspaces (e.g. STICLab in neighboring Tanzania) are demonstrating that, with the right vision and some funding, providing equipment and space is quite possible. Like the many small workshops in Shenzhen in the past (and the many industrial design shops in the present), these spaces enable entrepreneurs to get started in hardware.
Theme 2: Regulations can make or break an industry.
Sometimes no amount of innovation can get around regulatory roadblocks.
The importance of policy is not unique to the manufacturing industry or the Kenyan market, but it was a consistent and unavoidable theme across multiple conversations with African entrepreneurs. For instance, we heard that in certain industries, the import tariff rates are higher on components than on finished products. This makes it more competitive to import finished goods from abroad than to assemble them locally.
On the other hand, we heard positive examples of how some local governments have the will and desire to provide incentives to local business initiatives. Martha Haile, Head of Operations for West African startup Hello Tractor, said that “the government is focused on mechanization in Nigeria so there’s a lot of real interest in what we’re doing.” The caveat is that, as an individual startup, it can be difficult to compete with interest groups like multinationals, local business families, or parastatals for the attention of policy makers.
“In South Africa, ESCOM is the sole electricity utility company. When we install one of our units with solar panels … we can put one system and feed about 10 houses. But we [aren’t permitted to] sell electricity.”
— Magriet Leaper, co-founder, LiGE
Is it possible to get the right regulations in place? There was a sense of optimism that, with the right champions advocating on behalf of hardware innovators, government bodies were willing and able to make adjustments to enable local businesses. In fact, Kenya recently passed the Special Economic Zone Act of 2015 which opens the door for special business areas with favorable policy environments for investment and innovation. With this act, Kenya is implementing a strikingly similar policy to that which created Shenzhen, declared in 1980 China’s first Special Economic Zone.
Theme 3: Talent is more important than capital.
The most interesting takeaway — especially from the perspective of venture capital in capital-intensive hardware startups — was a common recognition that expertise was actually a bigger constraint than capital. As stated by Sagun Saxena, CTO and co-founder last-mile energy startup KOKO Networks, the ideal talent has “engineering and hardware development experience, understanding of global value chains and how to connect to them from here, and also a practical sense of how things work and don’t work here.”
Relative to other parts of the world, Africa does not have an deep local talent pool in manufacturing. Yet because operating in Africa has its own unique challenges, bringing in talent from overseas is not guaranteed to be successful. For a startup especially, recruiting a manufacturing expert from another market can be very expensive, and there is no guarantee that they will be able to adapt to and succeed in what will to them be a strikingly different and challenging operating environment.
One common strategy is to bring in mentors. Especially in a fast-growing company, where new problems arise with each rapidly passing milestone, targeted mentors who can solve a specific problem at a specific time are not only very helpful, but potentially more fit-for-purpose than a full-time engineer who may be excellent at one stage of growth but less adapted for another.
“The money is to pay the people to come and help. If I can get those people for free, then I don’t need the money.”
— Graham Benton, founder, LishaBora Hydroponics
Is it possible to get the right talent, with both manufacturing expertise and local knowledge? My sense is that both innate hardware and resources to develop it exist in Kenya. While in Nairobi, I heard about Richard Turere, a tinkerer who is something of a local celebrity for building at age 13 a hardware solution for keeping cattle safe from lions. The University of Nairobi offers manufacturing engineering at its Science & Technology Park, complete with The Fab Lab, a dedicated workshop for students to learn about hardware prototyping and production. A lesser known fact about Shenzhen is how the local government pursued a very intentional strategy to build high-quality universities to supply its ever-advancing industry with a well-educated workforce. Again, I see interesting and encouraging similarities.
Could local manufacturing develop in Kenya, providing a more enabling environment for hardware startups?
With the right equipment, regulations, and talent, I believe it absolutely could.
