RegTech

What Does Yaba Need Most to Become Great Tech Cluster?

The founder and CEO, E-Settlement Limited, Olaoluwa Awojoodu, in an interview urged the governor of Lagos State, Babajide Sanwo-Olu to invest in Fintech startups in the Lagos in order to build a thriving state’s economy, as there are no investors in Yaba area where many of the startups are based.

The declaration prompted me to carry an opinion poll. I asked the question “what does Yaba need most to become a great tech hub?” The result was quite revealing. 53% of the respondents selected investors, 07% voted talents, tech startups recorded zero while 40% voted for a combination of tech startups, talents and investors.

Michael Porter, Harvard Business School professor who developed the cluster theory argues that companies and workers are drawn to places where their industries reach a critical mass in the production of one type of good. “The enduring competitive advantages in a global economy lie increasingly in local things – knowledge, relationships, motivation – that distant rivals cannot match.”

Silicon Valley in California is a cluster. It is a crowded, difficult and expensive place to live or run a business. Why can’t tech companies just go somewhere else? The ecosystem of suppliers, venture capitalists, workers and networking opportunities available in Silicon Valley would be hard to replicate elsewhere.

Many cities and countries have tried to replicate it, but most have had little success. Over the past 10 years, Beijing’s Zhongguancun has become perhaps the most successful attempt to create another software tech cluster.

Yaba

Zhongguancun is home to over 300 regional headquarters or R&D centres of multinational corporations. The number of foreign employees there is nearly 10,000. The number of overseas returnees exceeds 30,000 and the number of returned experts in the 1000 talents plan is 1343, or 19 per cent of the country’s total.

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The entrepreneurial ecosystem is driven one of two ways; either by a crisis (i.e. innovation in the U.S. during World War II,) or during peacetime by profit. If it’s driven by profit then the ecosystem needs both entrepreneurs as well as venture finance.

Silicon Valley and China’s Zhongguancun have plenty of both. Yaba has a good number of entrepreneurs but a very limited number of venture finance. A combination of talent, money and government support makes Zhongguancun the closest equivalent in China to Silicon Valley.

Close to some of China’s most prestigious universities and research institutes, Zhongguancun enjoys great advantages in access to talent. The Haidian park of Zhongguancun is home to more than 40 universities, including the world-class Peking and Tsinghua Universities, as well as more than 200 research institutes and national-level laboratories.

Government also lends a hand. Preferential policies, including tax breaks and funding, offered in Zhongguancun by the local and central government, helps to make the place a magnet for tech talent and companies.

To attract global talents, Beijing’s municipal authorities earlier this year announced plans to offer the permanent residence for senior hires and allow them to bring their domestic helpers – if needed – with them to China.

Substantial capital funding for qualified business ideas is also critical for Zhongguancun’s entrepreneurial community. Beijing ranked as the top location for tech-related investments in China in the first half of 2017 by both deal volume and deal value, according to a report by PwC earlier this year. Shanghai, which ranked second, saw a total deal value of US$3.1 billion in the first half of 2017, far behind Beijing’s US$18 billion.

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Clusters don’t develop because a region has some kind of natural comparative advantage in the industry; it’s more a combination of history, luck, and government policies.

Yaba has history on its side. Yaba has been home to some of the first, second and third generation tech companies in Nigeria. Ditto Surulere and Ikeja areas in Lagos. But Yaba has sustained its heritage because of the new generation of tech entrepreneurs have made Yaba their habitat.

Yaba is got luck, as several institutions of higher learning in Lagos, are sited in that corridor. These include the University of Lagos, Yaba College of Technology, Federal College of Education, Federal Science & Technical College and Federal School of Radiography etc are some of the great schools in Yaba.

Government’s policies concerning Yaba tech cluster are neither here nor there. Apart from the little policy statement, no concrete steps have been taken by the Federal or Lagos State Government to make substantial investments in that corridor.

The significance of government investment in a cluster cannot be overemphasized.  Chinese government’s investment in key infrastructure makes many of the clusters in the country work. For example, the Dianchi area of Kunming changed from farmland to the world’s second-largest flower market cluster because the government invested in roads, railroads, and an airport.