November 10, 2024

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Nairobi is a deep tech hub for communication

Nairobi is one of those global centres, where world leading deep tech companies develop, according to the Deep Tech Index. The Index, produced by the European Centre for Entrepreneurship and Policy Reform (ECEPR) with support from Nordic Capital, maps the leading deep technology centres, focusing on key, future-shaping technologies. The index also studies what characterizes those countries which have a higher share of globally leading deep tech companies per million adults.

Those countries that have a high share of world leading deep tech companies, per million adults, tend to have strong protection for private property. Protection of physical property as well as intellectual property, is important in order to stimulate investments in advanced technologies. In Kenya there is a positive trend, in that property rights relating to physical ownership have improved over time. In fact, also intellectual property rights, which relates to patents, trademarks and other immaterial values, have improved.

A key finding is that countries with lower profit taxes tend to be more attractive for development of world leading deep tech companies. Here Kenya performs worse than the average, in comparison of those countries which do host world leading deep tech companies. Those countries which have a low tax burden as share of the total economic output, tend to also have more world leading deep tech companies per million adults. The general tax level of Kenya is relatively low, which means that government taxation and expenditure to a limited degree crowds out private investments. However, taxation of corporations remains too high in relation to other countries that have world leading deep tech companies.

Another finding is that those countries where students have higher knowledge levels in mathematics, science and reading, tend to perform better in deep tech development. Having world leading universities in engineering and technology is also closely related to success in deep tech. Kenya is not yet part of the international PISA program but is joining it in the near future. This Programme for International Student Assessment is important, as an objective global measure of how well schools are performing. The program also has extensive research on how to improve school results and reduce the number of school drop-outs. Joining this program is not a quick fix but an important part of long-term improvement of knowledge levels.

The strength of Kenya in deep technology is in communications and electronics. Development of these key technologies are focused to Nairobi. Communication and electronics have during the past hundred years reshaped much of human work and social activities. Having strength in these key sectors can boost the technological progress of the national economy as a whole, since many additional companies are part of the value chains created through electronic and communication deep tech activity.

Kenya attracts foreign direct investments, amounting to some 0.5 percent of total national economic output, on average for the past five years. In comparison, during the five years period before this, foreign direct investments amounted to on average above 1.2 percent of annual economic output in the nation. The on-going strengthening of private property rights can if combined with other business and trade friendly policies again increase investment flows.

The share of high technology products in goods exports is 3.8 percent for the past five years, nearly same as 3.9 percent for the previous five years period. This is a relatively high rate, but it has not increased. “The challenge for Kenya is to increase high technology exports shares, reducing corporate taxation to attract investments is an option. An encouraging sign is that Kenya is strengthening property rights including for intellectual properties. Another positive sign is that the country is joining the PISA program to better monitor and improve school results”, said Dr. Nima Sanandaji, author of the study.

The index finds that those countries that succeed with deep tech, tend to have lower unemployment levels. “Promoting deep tech development is important as it drives human progress and generates economic opportunities for the leading regions. Countries successful in advancing deep tech also tend to experience favourable labour market outcomes. For every additional globally leading deep-tech company per million adults corresponds to a 1.26 percentage point decrease in unemployment,” said Klas Tikkanen, Chief Operating Officer at Nordic Capital Advisors.

If the number of globally leading deep tech companies in Kenya doubled, this could be linked to a reduction of unemployment long term by 22 200. A part of this is since large international companies in advanced technologies generate export revenues and create jobs directly as well as through exchange with other local businesses. More importantly, achieving more deep tech success requires improvements of the overall business climate in Kenya. This would lead to many medium sized and smaller companies also succeeding. The roadmap needs to be based on combining existing policies for improvement the education system and property rights, with tax reforms that increase attractiveness for international investments. Much of growth of technology is occurring through international value chains, requiring increased attractiveness. A deep tech strategy can in the long term boost the technological competitiveness of Kenya, which transform into significantly better job outcomes for the population.

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