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Are tech cities the real drivers behind entrepreneurship, innovation?

Can purpose-built technology cities turn regions in emerging economies into the next Silicon Valley? This is what some may be asking after plans by Russia and now Kenya to boost their startup scenes through massive hub cities have recently come under fire.

In December critics told the UK’s Guardian newspaper that Kenya’s Konza Techno City, a planned US$14-billion techno city, won’t solve financing problems facing the country’s rising tech scene.

The city, which the Kenyan government believes can serve as a hub for the east African technology industries, aims to open in 2019 and employ 200 000 people.

Critics say the city’s planned location is too far from the capital Nairobi (over 50km away) and that funds allocated for the development would be better spent giving commercial lenders incentives to invest in new startups. Better ICT training programmes, would also help.

Out in Russia

On the outskirts of Moscow, Russia’s US$5.4-billion Skolkovo’s “innovation city”, has faced allegations of corruption, while construction delays, and political conflicts have dogged the project.

The question is whether the project, which kicked off in 2000 and aims to have 20,000 technologists and entrepreneurs living there by 2020, will be able to stimulate entrepreneurship in Russia.

While a team toured San Francisco in November last year looking for new recruits, there are already over 1 000 companies resident at Skolkovo, while a number of big US companies have signed agreements to locate there.

Generous incentives include a waiver on paying income tax, value-added tax, or property tax for 10 years.

But Russian entrepreneur and blogger Anton Nossik, believes the government’s approach of handing out tax-exempt money to selected startups is “very wrong”.

“Rather than a serious institutional approach, such as passing laws that would give businesses the incentive to innovate, you’re just gambling that some participants in your project will succeed,” he says.

Promote risk-taking

Much harder perhaps will be to create a culture of risk-taking, information sharing and an openness to new ideas, which entrepreneurship expert Vivek Wadhwa says underpins the success of Silicon Valley.

Read more: Cape Town will never be Silicon Valley, and that’s a good thing

But UCT economics professor Dave Kaplan believes techno clusters can be a success, if they are managed correctly and if they meet sufficient demand for their development.

Getting it right can help companies to create synergies among themselves, while they benefit from common infrastructure, he says.

South Africa’s own innovation cluster – Technopark in Stellenbosch, one of the country’s promising startup regions could be one of these successes.

Opened in 1987 by the University of Stellenbosch with a R10 million loan from the government, the development today has over 100 resident companies. These include not only successful local bank Capitec and EMSS Antennas which manufactures radio antennae for the MeerKAT project.

Strength in community

South African entrepreneur Franz Struwig, who in January sold his startup iKubu to a Garmin, a multinational company that specialises in GPS, said the three years he has been based at Techno Park had a “massive impact” on his company.

Struwig developed a radar to fit to bicycles which detects traffic approaching from behind. Previously he was based in nearby Somerset West, after moving from Pretoria.

Read more: SA radar startup iKubu exits to Garmin technologies

He says it’s a strong techno community and fellow tenants are very open, often sharing their ideas with other resident companies or providing him with input on his company’s strategy plan.

“So it’s a very accepting community and then quickly they (other companies) would pull us into their weekly meetings and monthly meetings and people like to hook each other up. So the moment they hear about an opportunity that is a possible fit you find someone e-mails you or gives you a call,” he said.

Don’t just copy

Many cities want to copy Silicon Valley. But Ross Baird, executive director at Village Capital, and Rob Lalka its director of strategy and partnerships, argued recently in Forbes magazine that it’s wrong to do so.

Silicon Valley they point out took hard work, smart policy, good money, and better luck over decades to create. In addition Silicon Valley-style companies create a lot of wealth, but they rarely create jobs at a meaningful scale (Instagram employed 12 people when Facebook acquired it for US$1-billion).

They argue that before leaders ask “How can we help startups?” they should first ask themselves these two questions: “What are we good at?” and “How can we leverage those assets to solve large-scale problems?”


This article originally appeared on Small Business Insight, a Burn Media publishing partner. Stephen Timm writes on small business and is presently in Cape Town, South Africa. Click here to sign up to his monthly newsletter. Follow him on Twitter at @Smallbinsight and on Facebook

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Author Bio

Stephen Timm
Stephen Timm writes on small business in emerging economies through his regular blog Small Business Insight. Follow him on Twitter at @Smallbinsight and on Facebook. More