25 November 2012

Rwanda: Taking Notes II - Finland


I have often wondered whether Rwanda should emulate economies that are heavily dependent on one type of activity, like Nigeria which is oil-dependent or even one-firm economies like Finland whose economic boom in the early 21st century could largely be attributed to Nokia (Let us momentarily forget that Nigeria's oil is set to run out in forty years, and I am not sure when I last saw a Nokia phone). If not imitate, what lessons can be gleaned from them.

There are a number of countries whose economies have profited from a single firm making a significant contribution to their GDP: Taiwan's Hon Hai is the world's largest maker of electronic components; Nestle of Switzerland singlehandedly contributes 15 per cent of its GDP, and Samsung 20 per cent of South Korea's GDP.

Of most interest to me is the Finnish story. Nokia has evolved extensively over the past century: starting off as a paper mill, the company started rubber production, then electricity generation, TV manufacturing, before eventually becoming a world telecommunications leader.

Nokia contributed one quarter of Finnish growth from 1998 to 2007, generated a fifth of Finland's exports, and injected 30 per cent of national R&D, paying over 20 per cent of total corporate tax and contributing 27 per cent of total patent applications. Fascinating!

Does Rwanda have a leaf to pick from Finland? For one, flexible adaptation: not many companies can claim to have gone from wood to smartphones with such success. Another is the fact that Finland didn't become a tech hub overnight: Finnish tech policy began to move towards ICT in the 1980s when the government commissioned a council to coordinate the planning of policy on innovation and provide funding. Rwanda finds itself in those very shoes today: looking to combine private initiative and public tech policy to carve a path towards an ICT-driven economy down the road. However, there's more...

Nokia wasn't an end-product of a systematic government plan to form a national champion but rather, a national champion was created by markets as a result of favorable business conditions. Emerging out of a liberalized telecom sector, much like Rwanda's, competition and market growth saw Nokia emerge as one of the largest Multinationals on the globe; what Rwanda does not have is the risk capital that was available to Finnish SME's competing in the tech market. We need more than hard-to-access traditional bank loans and explore risk capital financing options for start-ups, for example.

Another lesson can be drawn from academia: the Finnish government invested heavily in academic R&D. It is an interesting fact that academics in Finland have ownership rights to their ideas (not the case in most countries) which means tech villages sprout around universities creating innovative, entrepreneurial business activity.

A company like Nokia could easily tap into local expertise and provide business to emerging subcontractors in the ICT field resulting in a tech hub. We cannot keep outsourcing tech talent if we are going to be the regional hub: strong joint collaborative ties with industry, like Finnish academia and Nokia, would bear fruit.

I am in no position to deem whether the Rwandan economy can grow by becoming reliant on one company or activity, much like Finland. It is not a one-size-fits-all, but sometimes the absence of diversification can lead to strong competitive advantage in a specialized area, resulting in higher incomes.

There's the obvious question of vulnerability to disruption such as the case with Nokia today; I will argue that the ICT professionals from Nokia are still highly valuable and adaptable with versatile skillset, in that Nokia's collapse has still left a population of ICT professional who can find and create new sources of income. Nokia serves as a lesson in global capitalism and markets but doesn't flout the model, per se. What do you think?

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