December 8, 2021

StrategisChhr

Skillful Business Crafters

A Big Tech talent war threatens Kenya’s start-ups

When Lori Systems launched in Nairobi, Kenya, in 2016 as road haulage’s answer to Uber, local software engineers raced to join the company. Nairobi’s start-up scene was growing and Lori’s co-founder, Jean-Claude Homawoo, had quit his job at Google in New York and hedged his bets on Africa, believing in the potential of tech to fix the continent’s problems.

Three years later, Microsoft announced it was opening an engineering hub, the Africa Development Centre (ADC), with sites in Nairobi and Lagos. It promised to spend $100m and partner with local universities to develop a curriculum to “build our talent pipeline”.

“Everyone was happy to see these big tech companies come to the continent,” says Homawoo, speaking at Lori’s offices. “It was confirmation that the sacrifices that tech entrepreneurs had made five years earlier, was the right thing to do.”

But not long after Microsoft entered the Kenyan market, local start-ups felt the pinch of its presence. The tech heavyweight began an aggressive hiring spree, aiming to fill 500 software engineering roles at the ADC’s two hubs by 2023. Smaller companies in the area, such as Lori, Cellulant, Twiga Foods and others, who had invested in and trained young engineers, were swiftly outbid.

“Microsoft’s entry changed the dynamics of the software engineer market overnight,” says Caine Wanjau, chief technology officer at Twiga Foods, a business-to-business supply platform. “The company liked what they saw [in Kenya] not only in software engineers, but product managers and designers, and still now they are actively recruiting.”

Twiga Foods faced the double challenge of recruitment and retention. The company lost four employees to Microsoft and it became difficult to hire new talent as the tech heavyweight took the best candidates out of the market.

Lori Systems experienced losses too. The company tried to retain staff during the pandemic by emphasising employee equity and highlighting the growth and level of responsibility at a start-up versus a large corporation, says Homawoo.

Jean-Claude Homawoo, Co-founder and Chief Product Officer of Lori, talks to a colleague at his office in Nairobi
Jean-Claude Homawoo says his company, Lori, has lost employees to international corporations who can outbid it on salary © Patrick Meinhardt/FT

“In the end we lost six employees because of salary offers we couldn’t match,” he notes. “These weren’t only to Microsoft, but Microsoft was consistently the most aggressive in poaching from the top tech companies on the continent and everyone has experienced it.”

The goal of the ADC is to create opportunities for engineers to do “meaningful work from their home countries, as opposed to leaving and seeking them elsewhere,” according to Microsoft. It also said that greater investment increased — not decreased — the number and viability of local start-ups.

“The ecosystem effect is a driving force in our industry and we are seeing something similar in Kenya,” says Jack Ngare, managing director of the ADC. He points to Microsoft’s presence in Israel and India as examples of where the company has supported local start-ups.

But when the tech group recently announced it would hire 2,500 new workers in Israel, an article in Haaretz newspaper warned that the expansion could jeopardise Israeli companies’ ability to grow. Alongside a “severe shortage” in employees, local companies struggle to “compete with the deep pockets of Microsoft and other behemoths”.

The problem is similar in Kenya. Daniel Yu, founder and chief executive of Sokowatch, a platform that helps informal retail shops in Africa with supplies, says that unlike when his company launched in 2015, junior engineers are now significantly more expensive to find in Nairobi. This stunts growth and early-stage start-ups are the most affected.

“For local engineers it’s great to get two or three times their salary [paid by big tech], but for local start-ups, it makes things difficult,” he says.

A number of start-ups have shifted their engineering base to places such as eastern Europe, according to Yu, as they have found better engineers at lower prices. “This is a real shame, as ultimately African engineers should be working on building technologies for the African market,” he says.

“It becomes a perpetual brain drain as individuals are sitting in the continent but their work is benefiting companies abroad,” Yu adds.

The supply of new engineers must match or exceed demand to change the trend. National governments must ensure a talent pipeline, especially in tech hubs such as Kenya, says Iyinoluwa Aboyeji, a Nigerian entrepreneur and former managing director of fintech unicorn Flutterwave.

“The challenge has to be tackled at an ecosystem level to enable start-ups to survive and thrive, and that means governments need to get more deliberate at education,” says Aboyeji.

Rwanda is an example of a country investing in technology education and apprenticeships for young people, he notes. “It has to be a collaboration between government and tech companies, with government providing the infrastructure and tech designing the curriculum, so that the continent can begin to deliver 100,000 young, trained computer scientists every year as opposed to 4,000,” Aboyeji adds.

Earlier this month, Google announced it would invest $1bn in Africa over the next five years to ensure access to faster and cheaper internet. Microsoft, meanwhile, plans to roll out a mentorship programme with university partners and run marketability workshops for students. Amazon Web Services is supporting an acceleration programme for businesses in South Africa.

Such initiatives mean big tech benefits the entire ecosystem rather than just extracting from it, says Yu. But it is also a shrewd business move: as tech giants compete to be the cloud service provider of choice for local companies, they need to show they are supporting, not depleting, markets.

In the meantime, tech corporations must be mindful about the disruption they cause as they expand in Africa, says Homawoo. Even in an affluent city such as San Francisco, Big Tech affected the real estate market and pushed out local people.

“It would be irresponsible for them to enter the African market without learning from past experiences,” he says. “There is already massive inequality and the impact they could have on the workforce and cost of talent and goods could be damaging if they do not anticipate it.”

https://www.ft.com/content/3232ccdd-6d53-4c50-ab82-911738ecf92e